Business

Retail return fraud is on the rise, and companies are watching closely as many consumers have until the end of January to send back unwanted holiday gifts.
Retailers expect 16.5%, or $24.5 billion worth, of holiday returns to be fraudulent this year, according to a survey by Appriss Retail and the National Retail Federation.
Tactics include people saying they never received certain items, returning a different item than they bought or sending back a stolen product.

As retailers tried to win shoppers and boost sales in recent years, they made their online return policies more lenient than ever.
But those changes have come at a cost.

As more consumers shop online and send back more of those orders, retailers have moved to crack down on fraud. In some cases, shoppers can send back different items than the ones they bought, return stolen items or claim a purchase never got delivered when it really did.
Retailers estimate 13.7% of returns, or $101 billion worth, were fraudulent last year, according to a survey by Appriss Retail and the National Retail Federation. The share of returns expected to be fraudulent during the peak holiday season was even higher at 16.5%, or $24.5 billion worth, the survey found.

Arrows pointing outwards

Those goods are still flowing back in, as many retailers extend return windows for purchases made in November and December through the end of January. As retailers field those returns, fraud has become their top concern, industry experts said.
“Fraud is No. 1, and it’s not even close to No. 2,” said Vijay Ramachandran, vice president of go-to-market enablement and experience at shipping and mailing firm Pitney Bowes.
Processing an online return is already a costly proposition: It averages 21% of an order’s value, according to a Pitney Bowes survey of 168 retailers. Half the respondent companies paid more than 21%.

The cost of processing a return is increasing not only due to higher shipping and processing costs, but also because of rising fraud, industry experts said. As those tactics spread, many companies have started to make it tougher to return items.
“In cases where fraud is on the rise, like this year, what we’ve seen in the data, retailers are forced to, at minimum, change their policies slightly to accommodate for that potential fraud and abuse,” according to Michael Osborne, CEO of Appriss Retail, which helps companies manage theft and fraud. “It does increase their costs and essentially erode their margin.”
Saks CEO Marc Metrick said at the NRF Big Show in mid-January that while the retailer has long received legitimate complaints from customers about missing items, fraudulent “merchandise not received” complaints to the company have more than doubled over the past several years.
That’s just one fraudulent return tactic.
Shipping back an empty box or a different item than was received, such as a box of bricks instead of a television, is the most common form of return fraud, according to Pitney Bowes’ Ramachandran. In other cases, fraudsters could return stolen goods. In another example, they could also dig through trash to find a receipt, then go into that store, find that product and take it to the return desk.
“There are examples of price arbitrage where someone will buy a product on sale or promotion, and then return it for full price in order to get the delta of that benefit back to them, basically stealing those extra dollars,” Osborne of Appriss Retail said.
“Credit laundering, too, where they’re taking things like gift cards or store credit and using that to buy a product, then returning it and putting that money back onto a different card, allowing them to take the money from potentially a stolen or fraudulently obtained gift card or credit,” he added.
Appriss Retail gave CNBC an example of one person who netted upward of $224,000 by fraudulently returning more than 1,000 items to 215 stores across multiple states, using a variety of return tactics.

Return abuse is more common

There’s also less egregious behavior, often considered return abuse rather than fraud. It includes “bracketing” or “wardrobing.”
“Bracketing” is where a shopper buys more than one size or color with the intent of returning whichever doesn’t work for them. While not fraud, it still puts a return expense on the retailer. “Wardrobing,” when shoppers buy an item, use it and then return it, is considered a bigger issue.
More than half, or 56%, of consumers confess to “wardrobing,” according to a survey from fraud prevention firm Forter. One in four consumers said they bought an item during the 2023 holiday season with the intent to return it after use.
Forter Head of Risk Doriel Abrahams said premeditated, intentional returns after use are especially problematic.
Just under half, or 47%, of those who planned to “wardrobe” during the holiday season were between the ages of 18 and 34, according to Forter. “Wardrobing” happens with lots of products, not just clothing.
“I have heard of people, every time they move an apartment, they buy tools, drills, whatever, put up the shelves and the things they need, and then just send it back,” Abrahams said.

How retailers are combating return fraud

Elevators inside an Ikea store in Doral, Miami.
Jeff Greenberg | Universal Images Group | Getty Images

Bad actors that commit return fraud are hurting honest shoppers as retailers make their policies stricter to prevent abuses, those who track the tactics said. 
“It’s really putting a damper on your own experience, because right now, I look at it like the Plexiglas at the drugstore. We’re having to do a version of that on our website, we’re adding friction to the customer experience, to even the good actors” Saks’ Metrick said. “That’s a problem for us, and we’re going to have to fix it.”
Return fraud has caused several retailers to tighten policies for all consumers. Some even use artificial intelligence and other technology to personalize their return policies, which could vary for each individual.
“Certain retailers offer the ability for you to have different return windows based on your known history with that retailer, essentially equivalent to a loyalty program status level,” said Osborne. He said some companies such as Amazon have adopted that strategy, and “that’s where other retailers need to go.”
Amazon did not directly say whether it’s seeing more return fraud. Company spokesperson Kristina Pressentin said, “Amazon continues to make progress in identifying and stopping fraud before it happens” and that it “uses advanced machine learning models to proactively detect and prevent fraud, as well as employs specialized teams dedicated to detecting, investigating and stopping fraud.”
Companies have tried to keep consumers happy in an increasingly competitive retail environment by offering lenient return policies. Nearly three-fourths, or 73%, of shoppers choose a retailer based on the return experience and 58% want a smooth, no-questions-asked return experience across channels, according to a survey by Appriss Retail and Incisiv.
But companies have to try to strike a delicate balance between appeasing those customers and trying to lower return costs and incidences of fraud and abuse.
“It’s not a coincidence, that one bright day, eight months ago, almost every company started to charge for shipping returns, or started to have more restrictive return [policies],” Forter’s Abrahams said. “The money talks. At the end of the day, if you’re seeing that you’re starting to pay too much for restocking, or validating the items that are being returned, or shipping costs for returns, then you’re going to have to hold those costs to your clients.” Don’t miss these stories from CNBC PRO: More

Jürgen Klopp is a football manager. That means there is a limit to how much he can teach corporate bosses about how to do their jobs. Managers in firms tend not to be parent substitutes to their charges, envelop people in bear hugs after a successful meeting or use the gegenpressing technique against rivals. But Mr Klopp has drawn back the veil on a crucial ingredient of success in almost every walk of life: energy.To general surprise Mr Klopp announced on January 26th that he would be leaving his job as manager of Liverpool Football Club later this year. His team is leading the English Premier League, the most-watched competition in the world’s most popular sport. His job is secure—his contract does not run out until 2026—and he claims still to love it. But after eight years in the role, and more in management, he is running out of energy. His resources are finite, he said. “I can’t do it on three wheels, I don’t want to be a passenger.”Mr Klopp is not the first high-profile person to make this kind of decision. Jacinda Ardern resigned as prime minister of New Zealand in January 2023, saying that she no longer had enough in the tank to do the job. Jeff Kindler cited the extreme demands of his role when he stopped being the boss of Pfizer, a drugmaker, in 2010, saying he was looking forward to recharging his batteries. But admissions like this are nonetheless rare from someone leading an organisation.For energy is one of those factors that reliably differentiates bosses from those below them. Ability, ambition and luck all play a big part in climbing the greasy pole. But energy plays an outsize role. High-achievers have done their email and a full workout before the sun rises. They don’t cancel breakfasts because they are feeling a bit tired; they certainly don’t admit to doing so. They are less likely to nod off in the middle of the afternoon. They get off the red-eye and work a normal day.And that is just on the way up. Talk to people who have made the leap into CEO roles and they will frequently comment on how intense the job is, how tough it is to switch off. Most organisations are pyramids. As decisions get tougher and more important, they land on an ever smaller number of individuals. And as these figures become more senior, the number of people who want to see them goes up.The boss has to show their face to employees regularly, and it cannot be the face of someone who looks like they haven’t slept for two weeks. They have to glad-hand the board, meet investors, attend endless networking events and make time for actual work. It is exhausting to contemplate, let alone do.The sheer physical demands of big jobs mean that certain types of people have an advantage over others. Not having too many other calls on your time helps, which tends to be bad news for women, who shoulder more chores and caregiving duties at home than men.Extroversion offers an edge in terms of oomph. A survey of CEO time use from 2017, conducted by Oriana Bandiera of the London School of Economics and her co-authors, found that bosses spend 70% of their time interacting with colleagues, clients and the like. If you are the kind of person who derives energy from spending time with other people, this is like being a phone on charge all the time. If you are introverted and find other people draining, your battery will be close to 1% and it is only a matter of time before you shut down completely.Some lucky people naturally have more zip. These are the mitochondrial CEOs who can get by on three hours’ sleep and do not know what it is like to grope for the snooze button. But if you haven’t won the biological lottery, you can still work out what reinvigorates and what enervates. That might mean exercise at dawn, power naps in the afternoon or just protecting your calendar; when he was running Amazon, Jeff Bezos would aim for eight hours’ shuteye a night and try not to schedule meetings before 10am. It means prioritising rest rather than getting by on less of it. In their book “The Mind of a Leader”, Rasmus Hougaard and Jacqueline Carter found that senior executives were likely to sleep more than non-executives.In admitting that his energy stores are now becoming depleted, Mr Klopp has offered an unusual reminder of how punishing leadership roles can be. His decision to hang up his Liverpool tracksuit brings to mind the aphorism of another great football manager, Sir Alex Ferguson. Hard work is a talent, Sir Alex liked to say. But it is also just hard. More

Starbucks is launching its Oleato drinks in all U.S. stores beginning Tuesday, the company said.
The Oleato drinks previously debuted in select stores across the country and were the brain child of former CEO Howard Schultz.
The drinks were initially met with negative reviews.

Starbucks is launching its beverages called Oleato in all U.S. stores.
Courtesy: Starbucks

Starbucks is launching its olive oil-infused drinks in all U.S. stores beginning Tuesday, the company said.
The beverages, named Oleato, debuted in Italy in February 2023 after former CEO Howard Schultz visited the country and noticed locals drinking olive oil daily. The line of olive oil-infused coffee drinks launched the next month in select U.S. Starbucks stores and met negative early reviews, with The New Yorker saying the drink “tasted like a large spoonful of olive oil in coffee.”

Oleato means “with oil” in Italian, according to Starbucks. The line includes a latte and an iced espresso drink.
It also features the Oleato Golden Foam, which the company said is a vanilla sweet cream infused with Partanna extra virgin olive oil that can be added to any Starbucks drink. Four recommended customizations for the foam will also be available in the app, Starbucks added.
The launch comes on the same day Starbucks will report fourth-quarter earnings.
The company is trying to sustain sales growth in its North America unit. Its shares have fallen more than 3% so far this year.Don’t miss these stories from CNBC PRO: More

FanDuel-parent Flutter lists on the New York Stock Exchange, its first U.S. listing, under the ticker symbol FLUT.
Flutter expects to give DraftKings competition for earned media and investment capital.
Jefferies analysts believe Flutter could get a 20% premium on DraftKings’ valuation.

FanDuel-parent Flutter lists on the New York Stock Exchange Monday, offering U.S. investors an alternative to the biggest pure play in sports betting, DraftKings.
It’s a secondary listing for the international sportsbook, which will retain its primary listing on the London Stock Exchange and included in the FTSE 100 index.

But Flutter’s most important market for revenue and growth is the United States, where FanDuel is the market share leader. In the fourth quarter, FanDuel had 43% market share based on gross revenue and 51% based on net revenue.
But while FanDuel outperforms its competitors, its biggest rival DraftKings grabs the headlines and spotlight in earned media as the biggest (some might argue, the only) publicly traded pure play in sports betting. Shares of DraftKings have soared more than 150% over the last 12 months and are up 9% year to date.
Flutter wants some of the glory and some of the capital for FanDuel. Its shares will trade on the NYSE under the ticker symbol FLUT.
Flutter CEO Peter Jackson put it more diplomatically on Jan. 18, saying, “The additional listing will enable us to access deeper capital markets as well as making Flutter more accessible to U.S. investors and marks a new chapter in the history of the Flutter Group.”
Jefferies believes the NYSE listing could be a short-term catalyst for Flutter. In a note published Friday, analyst James Wheatcroft assumes a 20% premium to DraftKings’ valuation, because of FanDuel’s “sustained market share outperformance” and implies a price target of £210. Flutter is currently trading at £163 per share in London.

While DraftKings has gathered momentum since its public listing via SPAC in April 2020, hitting an all-time intraday high of $74.38 on March 22, 2021, it has lagged FanDuel in posting profits.
Other competitors have become profitable in certain quarters, though they have failed to gain significant market share. BetMGM, jointly owned by MGM Resorts International and Entain, has seen its market leader status in iGaming (online casino games) slip, as DraftKings and FanDuel have overtaken it.
Caesars Sportsbook, Penn Entertainment’s newly relauched ESPN Bet and Michael Rubin’s Fanatics Sportsbook, headed up by former FanDuel CEO Matt King, are also intent on taking share from FanDuel and Draftkings.

FanDuel CEO Amy Howe told CNBC in October at the Global Gaming Expo in Las Vegas that the company is ready to take on its well-capitalized competition.
“We know the scale is going to matter. And we know that having the most distinctive product is going to matter,” she said.
Flutter will delist its shares from trading on the Euronext Dublin to minimize regulatory complexity, though Flutter will remain incorporated in Ireland for tax purposes, according to the company’s website. The delisting makes it ineligible for inclusion on the Euro Stoxx 50 index. More

Handing over a family business to the next generation can be a dramatic process. If the company is big and progeny bountiful, the intrigue is followed with zeal by both the financial press and the tabloids. When 29-year-old Frédéric Arnault, the second-youngest of five scions of the LVMH luxury empire, took over its watch unit at the start of the year, speculation swirled about the succession plan being put in place by his billionaire father, Bernard Arnault. Yet many more heads of family firms face the opposite predicament: they have no heir at all.Legions of entrepreneurs born in rich countries during the two-decade baby boom starting in the 1940s are close to retirement age or past it. Some, like Giorgio Armani, the 89-year-old founder of the Italian fashion house, are childless. Others have offspring who want to chart their own career paths. Dalian Wanda, a sprawling Hong Kong conglomerate, faced a public headache when it turned out that the only son of the founder, Wang Jianlin, would not take over the company. Most heirless firms are not quite so large or well-known. But they are numerous. Owners aged 65 or over account for 23% of American firms with at least one employee, up from 20% in 2017. The share of German business-owners who are over 60 has climbed to 31%, three times the number two decades ago. Only one in ten is younger than 40. By 2025 almost 2.5m small and medium-sized businesses in Japan will have owners in their 70s or older, reckons the country’s economy ministry. Half of that group have made no plans for a handover.No owner likes to see a life’s work fall into desuetude. When otherwise successful companies fold without a new owner or are sold off piece by piece by inheritors, they also lose valuable know-how and intangible assets. Collectively, their disappearance into oblivion may be a drag on the broader economy’s productive potential. Fortunately for owners and governments, help is at hand thanks to a fast-growing industry of pseudo-heirs.The most established group of helpers, called search funds, is an offshoot of America’s private-equity industry. The first such fund was created in 1984 by a professor at Stanford University’s Graduate School of Business (GSB). Many are run by one or two MBAs in their early 30s—GSB graduates were historically particularly common. They raise capital from outside investors, identify one small or medium-sized company, typically worth less than $10m, buy it from their owners and take over as full-time chief executives.Search funds are now popping up across the Atlantic, where Europe’s ageing economies offer rich pickings. Arturo Alvarez, a Spanish search-fund founder, says he has looked at 3,000 companies in Spain and Portugal over the past two years or so, and has sat down for a conversation with about 400, of which he will pick just one. Jürgen Miller, an investor in search funds from Munich, notes that many of the more than 500,000 small and medium-sized firms in Germany’s formidable Mittelstand with annual sales of between €2m ($2.2m) and €50m are run by old-timers who might prefer to be soaking up the sun on Majorca.The next target may be Japan. In the past some Japanese founders with no male heir relied on the peculiar practice of adult adoption—a son-in-law or loyal employee can become the legal descendant of a business owner, avoiding gift taxes. Nowadays adopted daughters are acceptable, too. But relentless demographic trends are making such adoption ever harder. Japanese 70-somethings, of whom there are 16.4m, outnumber 20-somethings by four to three.Strangely, the world’s most demographically challenged big economy has so far not attracted many search funds. Some enterprising types are, however, profiting from its demographic cliff in other ways. M&A Research Institute, created in 2018 and listed in Tokyo in June 2022, is a succession broker. It uses clever machine-learning algorithms to match buyers, mostly private-equity firms or larger Japanese companies, and sellers. Two-thirds of its target businesses are worth less than $3.5m. The firm’s 32-year-old founder, Sagami Shunsaku, says that about four in five of the owners he encounters want to sell because they have no alternative plan for succession. Some are in their 90s.The pseudo-heir industry is still tiny. Between 1986 and 2021 search funds made deals worth just $2.3bn in total. But they are rising in popularity: a third of that figure was invested in 2020 and 2021 alone, with more almost certainly deployed since.And they are doing a roaring trade. According to one GSB study, the typical search fund boasts an annual internal rate of return (IRR)—the private-equity industry’s preferred performance measure, which calculates returns on deployed capital but ignores any uninvested money—of 35%. By comparison, conventional private-equity funds generate an IRR of around 15% over the past two decades. Jan Simon of IESE Business School in Spain (and an investor in search funds) says the outsize returns are due to a combination of little competition from bigger private-equity firms, which prefer much larger deals, and plenty of involvement by the young managing partners.The M&A Research Institute is similarly lucrative. Its operating profit more than doubled in the last financial year, to $32m. Its share price has risen by more than 450% since its listing; earlier this year Mr Sagami’s stake made him Japan’s youngest billionaire. He is already eyeing other rapidly greying places in Asia, such as Singapore. ■ More

Big pharmaceutical companies like Bristol Myers Squibb, Merck and Johnson & Johnson face so-called patent cliffs that will put tens of billions of dollars in sales at risk between now and 2030.
That refers to when patents expire for one or more leading branded products for a company, which opens up the door for competitors to sell copycats of those drugs, often at a lower price.
Some companies appear to be well-prepared to offset some of the losses from upcoming patent expirations.

The New York Stock Exchange welcomes Johnson & Johnson (NYSE: JNJ) to the podium. 

Big pharmaceutical companies such as Bristol Myers Squibb, Merck and Johnson & Johnson face a looming threat that will put tens of billions of dollars in sales at risk between now and 2030, as blockbuster drugs will tumble off a so-called patent cliff.
That refers to when a company’s patents for one or more leading branded products expire, which opens the door for competitors to sell copycats of those drugs, often at a lower price. That typically causes revenue to fall for drugmakers and costs to drop for patients, who can access more affordable options.

Certain drugmakers appear well prepared to offset some losses from upcoming patent cliffs, as they build their drug pipelines and ink acquisitions or partnerships with other companies, some Wall Street analysts said.
Patent cliffs are an unavoidable issue for pharmaceutical companies. They must replenish older top-selling drugs with new ones that they hope will not just sustain their sales, but also grow them.
The loss of exclusive rights on a drug can affect companies differently, depending on how much of their sales they get from the product or what type of treatment it is. Some drugs facing patent expirations will also be subject to the Biden administration’s Medicare drug price negotiations, a policy that may further threaten the companies’ revenues. 
The top 20 biopharma companies have $180 billion in sales at risk from patent expirations between now and 2028, according to estimates from EY.
“It does differ by company at this stage, and I think there are a number of products in the ’25, ’30 timeframe that will be major growth drivers for large biopharma companies … but all in all, there are plenty of companies that have revenue holes to plug,” William Blair & Company analyst Matt Phipps told CNBC.

Some top drugs set to lose exclusivity

Merck’s Keytruda is an immunotherapy that treats melanoma, head and neck, lung and other certain types of cancers.

Key patent expirations: 2028
2022 sales: $20.94 billion 
Percentage of company’s total 2022 sales: Roughly 36%
Estimated future revenue: $14.9 billion in 2030, according to Guggenheim estimates.

Bristol Myers Squibb’s Eliquis is a blood thinner used to prevent clotting, to reduce the risk of stroke.

Key patent expirations: 2026 to 2028
2022 sales: $11.79 billion
Percentage of company’s total 2022 sales: Around 25%
Estimated future revenue: $478 million in 2032, according to Leerink Partners estimates.

Bristol Myers Squibb’s Opdivo is an immunotherapy used to treat cancers, including melanoma and lung cancer. 

Key patent expirations: 2028
2022 sales: $8.25 billion 
Percentage of total 2022 sales: Almost 18%
Estimated future revenue: $3.18 billion in 2032, according to Leerink Partners estimates.

Johnson & Johnson’s Stelara is an immunosuppressive medication used to lower inflammation and treat several conditions, including plaque psoriasis and psoriatic arthritis. 

Key patent expirations: 2024 in Europe, 2025 in the U.S. (Stelara’s patents began to expire in the U.S. last year, but the company struck deals with competitors to delay the launches of copycat drugs).
2022 sales: $10.86 billion
Percentage of total 2022 sales: Around 12%
Estimated future revenue: $2.63 billion in 2028, according to FactSet estimates.

The type of drug matters

Patent cliffs could differ depending on whether the product is a small-molecule drug – meaning it’s made of chemicals that have low molecular weight – or a biologic, or a medicine derived from living sources such as animals or humans.
Many of the biggest drugs facing upcoming patent expirations are biologics, including Merck’s Keytruda, J&J’s Stelara and Bristol Myers Squibb’s Opdivo. Those drugs will inevitably rake in less revenue, but it may take time before so-called biosimilars threaten their dominance. 
Investors will get updates on Merck and Bristol Myers Squibb’s plans for the years ahead when they report earnings on Thursday and Friday, respectively.
Phipps said biosimilars have historically “had trouble gaining market share” from their branded counterparts. That’s unlike generics, which are cheaper copycats of small-molecule drugs like Bristol Myers Squibb’s Eliquis. 
The difference is that many biosimilars aren’t identical copies of branded biologic drugs, while generics are. 
That means biosimilars are not interchangeable: Pharmacists can’t directly substitute a branded biologic for a biosimilar when filling a prescription. Not all patients will react to a biosimilar in the same way as they do to a biologic, which makes some physicians more wary of switching patients to them.
Biosimilars also cost much more to research and develop, and are more complex to manufacture, than generics, making biosimilar makers less willing to sell them at significant discounts to branded counterparts, Phipps noted. 

Humira, the injectable rheumatoid arthritis treatment is pictured in a pharmacy in Cambridge, Massachusetts.
JB Reed | Bloomberg | Getty Images

One example is AbbVie’s Humira, a biologic that helps treat an array of inflammatory diseases. Several biosimilars of Humira debuted on the market last year, but the drug has so far only lost 2% of its market share to those copycats, according to a report released this month by Samsung’s biopharmaceutical subsidiary, Bioepis. 
That’s partly because the drugmaker has offered rebates on Humira to pharmacy benefit managers. Its lower price has cut revenue, but it is also helping the drug stay competitive.
“What’s really impacted is not volume in the market, it’s price,” Piper Sandler senior analyst Christopher Raymond said. He added that Humira is a highly profitable drug, so AbbVie can set a lower price and “still maintain a very, very decent margin.”
Still, AbbVie expects that Humira’s revenue declined by 35% last year compared to 2022, when the drug raked in more than $21 billion.
Raymond forecasts a 33% drop in 2023 and an identical decline in 2024, to slash its revenue to about $9.5 billion.  

Drugmakers prepare to offset losses

JPMorgan sees the upcoming patent cliffs in the mid-2020s as “largely manageable” as drug pipelines improve, and expects the biopharmaceutical industry’s sales to be “roughly stable” through 2030, analyst Chris Schott said in a note in December. 
Take Merck: Schott wrote in a January note that the company “has made substantial progress in addressing its post Keytruda” patent expiration, adding that the company’s “post 2028 profile is looking increasingly attractive.”
During the JPMorgan Health Care Conference earlier this month, Merck CEO Robert Davis said the company expects to have more than $20 billion in sales from oncology drugs by the mid-2030s, which is double the forecast the company provided during the same time last year. 
That improved outlook now includes three antibody-drug conjugates – which target cancer cells and minimize damage to healthy ones – from the licensing agreement Merck inked with Daiichi Sankyo in October. It also includes Merck and Moderna’s personalized cancer vaccine, which has yielded promising mid-stage data when combined with Keytruda to treat the most deadly form of skin cancer. 
The company also hiked its revenue outlook for cardiometabolic drugs to around $15 billion by the mid-2030s, up from a previous guidance of $10 billion. 
Davis noted that Merck views Keytruda’s patent expiration as a “hill, not a cliff,” and is focused on making “the dip as small as possible and the return to growth as fast as possible.”

Source: Merck

Meanwhile, JPMorgan’s Schott said shares of Bristol Myers Squibb had a challenging 2023, as new drugs ramped up “slower than expected.”
But JPMorgan expects those new products, along with the drugmaker’s recent acquisitions and growing mid- to late-stage pipeline, will “ultimately position the company for growth” after upcoming patent expirations. For example, Bristol Myers Squibb acquired Karuna Therapeutics, which develops drugs for psychiatric and neurological conditions, for $14 billion in December.
Meanwhile, Schott said he believes J&J is “well positioned for healthy growth” after Stelara’s patent expires. The firm believes the company’s pharmaceutical business can deliver mid-single digit sales growth through 2030, he wrote in a December note.
J&J’s medical devices business is also becoming a bigger share of the company’s revenue, which could help the company offset the Stelara patent cliff, CFRA analyst Sel Hardy said. The business raked in roughly $30 billion of J&J’s total $85 billion in 2023 sales. 
In addition to internal developments, companies will likely look for opportunities to acquire more drugs, particularly those in late-stage development that are close to entering the market, said Arda Ural, EY’s Americas industry markets leader in health sciences and wellness.
The biotech and pharmaceutical industry is also starting the year off with about $1.4 trillion on hand to make deals, he added.

Drugmakers buy more time

To avoid losing revenue, pharmaceutical companies are also moving to delay competition or extend patent protections on drugs. 
Merck is testing a new, more convenient version of Keytruda that can be injected under the skin rather than through intravenous infusion. If that new form is approved, it may land the company a separate patent and extend Keytruda’s market exclusivity by several years. 
Bristol Myers Squibb is also testing a new form of Opdivo, which is currently administered into a patient’s veins. A version that’s injected under the skin showed promising results in a late-stage trial in October, and could also lead to extended market exclusivity.

Boxes of Opdivo from Bristol Myers are seen at the Huntsman Cancer Institute at the University of Utah in Salt Lake City, Utah, July 22, 2022.
George Frey | Reuters

J&J’s strategy with Stelara is a bit different.
In 2022, J&J sued Amgen over its plan to market a biosimilar for Stelara, saying it would infringe two patents for the drug. J&J confidentially settled that lawsuit in May, but will allow Amgen to sell its biosimilar of Stelara no later than 2025. 
A month later, J&J reached similar settlements with Alvotech and Teva Pharmaceuticals, which are also planning to launch a biosimilar of Stelara. 
“Pharma is doing what they can to make sure that they squeezed that the most they can out of these drugs before they open up widely,” Mike Perrone, Baird’s biotech specialist, told CNBC. But he noted that “while you can tack on some years and extend revenues, there’s only so much time you can add.” 

Medicare drug price negotiations are a factor

Medicare drug price negotiations under the Inflation Reduction Act are an additional threat to companies, but how the policy affects revenues could differ depending on when a drug loses exclusivity. 
Medicare is beginning price talks for the first round of 10 prescription medications this year. The talks include Stelara and Eliquis, along with a few other treatments facing patent expirations. 
By the fall, the federal government will publish the agreed-upon prices for those medications, which will go into effect in 2026. 
It’s too early to know how much Medicare will be able to negotiate down prices. 

Activists protest the price of prescription drug costs in front of the U.S. Department of Health and Human Services (HHS) building on October 06, 2022 in Washington, DC.
Anna Moneymaker | Getty Images

But some experts said lower prices in 2026 may have less of an effect on drugs already expected to see revenue decline as patents expire around the same time. For example, Stelara will lose exclusivity in the U.S. in 2025. 
It’s a slightly different story for drugs that will face generic competition after 202https://www.fda.gov/about-fda/center-biologics-evaluation-and-research-cber/what-are-biologics-questions-and-answers. Perrone said a lower negotiated price on a drug will result in companies losing revenue earlier, before the patents expire. 
Still, he said the bigger threat to revenue for drugs – regardless of when they lose exclusivity – is competitors entering the market, not a new negotiated price with Medicare. More

At a time when streaming services are eager to lure in new subscribers and decrease churn, having a hub for family-friendly content is one way to ensure paying members stick around.
The unique thing about kids content is that streamers don’t need a lot of it to keep kids occupied.
Shows like “Bluey,” an Australian production, “Peppa Pig,” a British production, “Masha and the Bear,” a Russian production and “Miraculous: Tales of Lady Bug and Cat Noir,” a French production, have managed to perform well in their native countries as well as in America.

Tinky-Winky, Laa-Laa, Dipsy and Po pose for a photo as the Teletubbies celebrate their 25th anniversary with the Lighting of the Iconic Empire State Building on April 26, 2022 in New York City.
John Lamparski | Getty Images Entertainment | Getty Images

“Tinky Winky. Dipsy. Laa-Laa. Po!”
Those four names, the iconic sing-song intro to the “The Teletubbies,” have graced household TVs for nearly 30 years. While the library of episodes hasn’t changed in decades, their role in American media has taken on new meaning in the age of streaming.

“Back in the day TV was a little simpler,” said Dean Koocher a television expert, who spent years bringing international kids shows, including “Teletubbies” and “The Wiggles,” to the Americas.
“Back then there were less gatekeepers, you know, there was PBS, Disney and Nickelodeon was kind of an upstart coming up,” Koocher told CNBC. “The good thing was, if you ever could get their eyeballs, you had a much bigger piece of the market, because there weren’t that many choices for kids.”
Now, shows aren’t just on traditional TV and there are far more places for parents and kids to find content. From YouTube and TikTok to dozens of streaming options, audiences don’t need to wait to watch their favorite shows. Saturday morning cartoons are now everyday-anytime cartoons.
And that’s good for streamers, too, especially as Wall Street profitability pressures mount.
Kids represent a unique demographic for the entertainment industry. Age-specific advertising laws mean companies can’t market directly to them in many cases, but their viewing habits — often favoring repetition of content — makes them exceptionally loyal consumers.

At a time when streaming services are eager to lure in new subscribers and decrease churn, having a hub for family-friendly content is one way to ensure paying members (i.e. parents) stick around.
“Kids and family-friendly content is critically important to both streaming acquisition and retention,” said Peter Csathy, founder and chair of advisory firm Creative Media. “Franchise family-friendly brands are welcomed by exhausted parents looking for some down time as their kids get their screen time.
“Once those kids are hooked on a show, they never leave and will not let their parents even think of leaving,” he added.
That’s vitally important for streaming services, especially as consumers grow more cost-conscious and weigh which services to keep month after month and which services to ditch before the next billing cycle.
In recent years, legacy media companies — like Disney, Warner Bros. Discovery, Universal and Paramount — have scrambled to compete with Netflix in the streaming realm. For a while, Wall Street was satisfied with high subscriber growth and the promise of profitability in the future. However, as ad revenue from linear TV continued to decline significantly, investors quickly reversed course, demanding more immediate earnings growth.

Rinse, repeat

The unique thing about kids content is that streamers don’t need a lot of it to keep kids occupied, said Koocher, who now runs Kidstream, a streaming service focused on providing kids aged 2 to 9 with appropriate, enriching content.
“Young kids don’t mind repetition,” he said, noting that while adults will watch a new season of a show and then largely move on to another, kids aren’t opposed to repeat viewings in a short span of time.
“Kids are notoriously obsessed with the franchise movies, shows and characters they love, and will watch them over and over and over again,” Csathy echoed.
This means streamers don’t need to license or create as much content to keep these viewers coming back each month.
Currently, adult-only original entertainment on streaming services outnumbers TV-G or TV-PG rated content by nearly 270%, according to a study from the Parents Television and Media Council published in October.
“Seeing that less than 15% of titles on the major streamers is reportedly family-friendly, seems to me that most major streamers don’t fully embrace this reality,” said Csathy. “Franchise content is something that would be smart to prioritize. Very smart.”
A number of major streaming services have kid-centric sections of their platforms for their proprietary kids TV productions, but many have also looked outside of Hollywood to license content from international production companies for U.S. audiences.
“A child in the U.K. or a child in France or a child in Australia or the U.S. have similar wants and needs at that young age,” said Koocher. It’s only as they mature that their taste in content begins to differ.
That’s why shows like “Bluey,” an Australian production, “Peppa Pig,” a British production, “Masha and the Bear,” a Russian production and “Miraculous: Tales of Lady Bug and Cat Noir,” a French production, have managed to perform well in their native countries as well as in America.

Girl watches “Peppa Pig” on iPad tablet laying in the sofa at home.
Artur Debat | Moment Mobile | Getty Images

Meanwhile, Koocher has found that kids today are still interested in old classics like “Barney,” “Thomas the Tank Engine,” “Madeline” and “Wallace and Gromit,” all of which are available on Kidstream.
Koocher’s platform, which costs $4.99 a month, is also home to newer programming like “Dot” from Randi Zuckerberg, sister of Meta founder Mark Zuckerberg; the animated problem-solving duo of “Bitz & Bob;” and the live-action animal show “Gudrun: The Viking Princess.”

The future of kids content

Amid a desire from parents for more content and educational options, there’s an opportunity for artificial intelligence to help speed up the animation process.
AI not only has the potential to hasten the animation process, but it also democratizes entry into the animation space.
“Generative AI will enable the streamers to generate new kid programming much faster and cheaper, which they absolutely will do,” Csathy said. “Originality and quality is sure to suffer, but the streamers will bank on the hope that kids won’t notice.”
For Kidstream, the focus remains on quality over quantity, Koocher said.
“We’re motivated by the parent or the caregiver, whoever’s buying the services, just to be happy,” he said.
The platform, which has been around since 2017, has more than 25,000 subscribers, a fraction of the major streaming platforms. But the company can get away with fewer viewers in part because it doesn’t need to spend exponentially on new content.
Koocher, who has three decades of experience in the kids TV space, has seen the transition away from linear programming and says that audiences don’t want to return to a time-based schedule in order to watch their favorite programs, with the exception of sports.
“I can see more niche channels developing where you can really super serve your customers, whether it’s, in our case, for parents of young children or for European crime dramas,” he said, alluding to established services like BritBox and horror streamer Shudder.
“On-demand streaming, I think, is definitely the way to go.”
Disclosure: Comcast is the parent company of NBCUniversal and CNBC. More

While many space companies battened the hatches to survive, a few publicly-traded names are running on fumes.
A trio of names appear likely going the way of Virgin Orbit, which flamed out last year: Momentus, Astra and Sidus Space.
Despite some likely turbulence ahead, the space sector as a whole isn’t necessarily struggling.

A view from onboard the upper stage of rocket LV0009 during the company’s livestream on March 15, 2022.
Astra / NASASpaceflight

The space sector’s on the tail end of a boom-and-bust cycle. While many companies battened down the hatches to survive, a few publicly-traded names are running on fumes.
A flurry of about a dozen space companies went public over the last few years. Although each have had fairly dismal stock performances since their debuts, the majority are still moving forward and look to build momentum in the year ahead, with some closing in on coveted profitability milestones.

But a trio of names appear likely to go the way of Virgin Orbit, which flamed out last year. Here’s who’s most at risk of delisting, acquisition or even bankruptcy.

Sign up here to receive weekly editions of CNBC’s Investing in Space newsletter.

Momentus

Space tug operator Momentus has already warned shareholders that it’s running out of money, and earlier this month the company abandoned plans for its next mission.
Once valued at over $1 billion, Momentus has gone through a tumultuous couple of years. Despite a 1-for-50 stock split last year, its shares currently trade near 80 cents, putting the company at a depressed $7 million valuation.
The next few weeks will likely prove crucial for Momentus to find a major new backer or buyer, or else face bankruptcy.

Astra

Astra has been conducting piece-meal financing rounds from a handful of investors over the past couple months, as the company’s been nearly out of cash since October.

Its rocket-launching business has been on hiatus since June 2022, and its acquired spacecraft business is not driving meaningful revenue growth. And, while the company’s founders floated a take-private plan in November, there’s been no word from Astra’s board of directors on the proposal.
Once valued at over $2.5 billion, Astra’s valuation has been under $50 million for months.
Short of completing that take-private deal, it’s unclear how the company could climb out of its cash-desperate situation.

Sidus

Sidus Space is a little-known space company that went the traditional IPO route in late 2021 and began trading on the Nasdaq at a near $200 million valuation. Sidus has aimed to build its own satellite constellation as a testing or data platform for a variety of customers.
But it’s seen minimal revenue growth and rising annual net losses. While its inaugural satellite was supposed to launch in late 2022, the company has yet to get the spacecraft in orbit, most recently targeting a March launch.
Sidus has raised small amounts of funding through public stock offerings of $5 million or less since its IPO. But it had less than $2 million in cash at the end of September, trading at a near $9 million valuation according to FactSet.
Last month, Sidus performed a 1-for-100 reverse stock split to regain compliance with Nasdaq listing rules.
Momentus, Astra and Sidus did not respond to CNBC requests for comment.

Elsewhere in space

A fourth space company in a potentially precarious spot is satellite imagery company Satellogic. Its most recent financial update only dates to the end of June. At the time, Satellogic disclosed it had substantial doubt of surviving through September 2024. The company’s stock currently trades near $1.50, at a $21 million valuation.
Despite some likely turbulence ahead, the space sector as a whole isn’t necessarily struggling and continues to attract interest from the private markets. Overall, investment in the space sector bounced back in 2023, with companies bringing in $12.5 billion in investment last year.
And while industry analysts predicted a fallout from the flurry of public debuts a couple years back, it hasn’t been as severe as forecast just yet. Many space stocks are below where they were when they came to market — and in many cases well behind original financial forecasts — but most are not on death’s door.
For example, Terran Orbital won’t be near the $411 million in 2023 revenue it forecast when it was going public three years ago. But, despite its stock price trading near 80 cents at a $156 million valuation, Terran Orbital appears to have a lifeline from a key customer.
Earlier this month, Terran announced receipt of a milestone payment from its biggest customer, Rivada, and, on the same day, said its cash at year-end was $70 million, up from $39 million at the end of the third quarter. More