Outlook for Rx Drug Pricing, 2020 Global Trends

Week on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show weekdays at two pm Eastern only on Bloomberg Radio. Let's get into what is happening overseas and obviously is among the most read stories capturing a lot of attention moving markets, and it's those air strikes against Iran, the response both political and military. Nick Wadhams Joints, the State Department reporter for Bloomberg, joining us on the phone from Washington. He has been tracking

this minute to minute. Nick, thanks so much for joining us, Thanks for having all right, so give us the latest here. We have a pretty good sense of what's happened over the last twenty four hours. What's happening now and where do we go? Well, what you're seeing now is the administration really now focusing on the messaging that follows what was an extremely bold and really unprecedented strike, an attack on a on a one of Iran's most prominent figures.

One one official told me it was equivalent to killing the guy who was a combination of CIA director and Defense secretary rolled into one so and then to top it all off, it happened on Iraqi soil. Um. The US is saying that this was a defensive action, and they're really trying to put the emphasis on the fact that they believed that by killing customs Summani, they were saving American lives. Potentially hundreds of American lives were at risk.

They're not telling us the details of that intelligence, but they are saying that there was an imminent threat to Americans in the region, um, and that that's why the strike was taken. So really trying to get away from the idea that this was an escalatory act on on the part of the president. Nick, I've read at least three articles today and um, you know, I'm in San Francisco and so we're all keeping our eyes on on technology.

But I do hear from at least multiple articles that the way that Iran now retaliates is via a cyber attack. Are you hearing as well that if they do a measured response, would it be via cyber warfare. That's certainly one of the what's seen as being the most viable options. What's what's clear here is that if Iran chooses to respond, which the general consensus is that they will have to, um, the question is how and and the word that keeps

coming up is asymmetry. So they obviously don't have the military might to take on the United States military head to head, but they can do other things. They can um attack American forces and officials who are in the region. They can attack American allies, they can attack oil infrastructure in countries like Saudi Arabia, as they've done before. And they also have a very advanced cyber warfare program, so

that could be another way to do it. Uh, It's unlikely we would see the same sort of toe to toe m military action that the United States wage because they just don't really have that refined a capability to do that. So what we're looking for is in the days or months ahead, some sort of asymmetrical response, And indeed one of one of the ideas is that that would likely take the shape of a cyber attack, because

that's one way they could be most disruptive. And so Nick and you alluded to this a bit a few minutes ago, but you know, sort of the messaging around this some sharp words from the other side of the aisle, the democratic side of the aisle, when it comes to Congress. What might we see upcoming in terms of the discussions in Washington about, you know, how the other branches of government and specifically the legislative branch need to get involved

or should be involved going forward. Well, it really plays into this broader discussion or debate that's been going on for for years about you know, the quote unquote imperial presidency, the idea that the president himself just has an enormous amount of power to launch a military strike essentially at a time and place of his choosing, and regardless of whether it touches off a potential consulict or war, that doesn't have to consult Congress, even though it is um

Congress's right to to be the one that declares war. So I think what you're going to see in the next couple of days is a real effort by this administration UH to present what it found or what it concluded was the intelligence that led it to act, UM to persuade Congress that um, it did so in a way that was justified and urgent and had to be done now, and that there was no time to go

through other processes. Though of course, this administration, like others, has has shown that it's not particularly wedded to doing things UH in how in a way that we would define as being sort of according to proper procedures. So um, certainly a lot of demands from from Democrats in Congress that uh they be keyed in on on what that intelligence was. And then I think as that happens, we should start to see better and have a better sense of what exactly it was that made the President feel

this was such an need. And Nick, what are you hearing about how else US officials the Trump administration is preparing for any sort of retaliation That you said is the consensus from Iran. Well, the big thing is that the US is is bolstering its military presence in the Middle East now, and they plan to send about three thousand more troops from the eighty second Airborne UH into Kuwait. Um. They had already deployed about seven troops to Quate earlier

this week. Um, after the after an attack on the U. S. Embassy there. Um, So what what you're seeing here really is putting those forces in the region. Uh. The administration says this is to protect Americans, that they will be taking a defensive posture. Again, the insist this is not meant to be an escalatory action. Um, but there is really no one else who sees it that way. But UM, clearly there's a feeling even among American allies that this

was a vastly escalatory action. All Right, Nick Wadams, thank you so much. Part of a global team that is keeping a close eye on this story, the implications, as we say, both military, politically, and financially and economically as

this plays out in the coming days and weeks. We really appreciate your time, Nick, our State Department reporter joining us from Washington, d C. All Right, So drug pricing continues to be one of the hottest issues when it comes to consumers, when it comes to the markets, and when it comes to politics as well. Michael Ray joins us. He is founder and chief executive officer of r X Savings Solutions, joining us on the phone from Overland Park, Kansas. Michael,

nice to have you with us. Likewise, good to be here, all right, So give us a sense of where we are when it comes to drug pricing. As the beginning of the year and the beginning of the year, I have to think, given that it's an election, your presidential election here, we're gonna be hearing a lot about drug pricing in that realm. It's also something that affects just

about all of us. So where are we? Ah? Yeah, So I think you know, when we look back in the last decade, this has been a consistent theman issue really highlighted when when Trump won back in the end of sixteen and in the seventeen where you know, you had pharma companies coming in and taking social pledges to kind of do things a bit differently. In the subsequent

years since we haven't really seen too much different. There have been some kind of tamped down percentage prices, but the number of increases is actually outpacing uh this year when you look at first three days in versus by over Michael, more drug price increases. Yeah, tell us why I understand the need to raise drug prices to invest in R and D find new cures. These drug trials are expensive. But why are we seeing what sounds like

more drug pricing. It's higher than inflation, higher than last year. What's the balance? Yeah, it's a good question. I think that's the that's the you know, trillion dollar question that everyone's trying to answer. You know, there is um when when drug prices are expected in the market for public markets. Profitability certainly that's one driver. Um. You know, less profitability, uh doesn't mean less money for R and D or does it mean maybe less profits in the short term,

but more in the long term. And what's really good for um, the pharma the pharma company long term? That's a question. I think we're very shortsighted um with what's going to up in next quarter, next year, and we're not looking five to ten years out in a lot of cases with the with the pharma company operation. Right, And have you seen sort of behavior markedly change in terms of economic financial decisions being made on the front lines by these companies in response to a lot more

public and political pressure. Well, I think what we've seen from the large cap pharma companies is uh, you know, kind of consistently below ten price increases UM. There they're still quite a bit higher than inflation. And when you think about the compound effect of a nine nine increase over three years, you know, compounded that's much bigger than

so you're still seeing um. You know, these high dollar products come to market with compounded rates of increase in pricing UM and and that ultimately just continues to strain the economy as a whole. Health plans, employers in and consumers certainly, who are the one that are carrying that burden? Michael. I'm based out here in San Francisco, and in about a week or two we will be heading over to the weston St. Francis where we're going to be at

the JPMorgan Healthcare Conference. We have interviews with all of these big tech companies, Fiser, you name it, some of these big healthcare companies. What is the number one question, the number one theme we should be asking big drug companies when we're at that JP Morgan Healthcare conference. Well, I think that it's you know, it's a drug pricing

is very complex. I mean, there's obviously the pharma company where things start, and there's a lot of intermediaries that go between production of a pharmaceutical and the end consumer, Um, who's who ends up taking it? So, you know, the big question is what is driving drug price increases? Is it, you know, the need to try to appease the public market from a profitability standpoint? Is it more money for R and D? Is it for other people in supply chain? Um?

Those are all the questions that really need to be answered or didn't I think? UM? From a farmer perspective, they'll certainly have opinions on you know the at the end of the day, is it is it? Um? You know, what is the driver? Why would they take these increases consistently? Um? If they claim that there's no actual you know, net profitability by doing so, Um, then what would be the reason to to keep doing it? Where to leave it there? Michael Ree is founder and chief executive officer of our

ex Savings Solutions. He joined us on the phone from Overland Park, Kansas. Next, Well, it's more connected world. For sure, We're more connected to our cars, but maybe less connected to each other by virtue of everything that's around us. Let's get into that and much more with the chief futurists over at Ford that Cheryl Connolly. She joins us on the phone from dearborn, Michigan. Cheryl, Happy New Year. Great to have you with us. Thanks, Happy New Year

to you too. All Right, First of all, Taylor and I've been talking about this off air. You have a really cool job. I mean, that's fair to say. I do have a really really great job. I'm the chief teutist before I've done future work for the company for sixteen years and I've been with Forward for twenty four years. So it's a really really great uh gig. And it always surprises people when I tell them that my job is to look outside of the auto industry anything pertains

specifically to automotive. Al Right, so you have recently put some thoughts out there. What was the thing that most intrigues you as you look ahead, especially as we think about twenty which feels like kind of a key year when it comes to our relationship with our cars. It is. It is a really big year. I mean, we're starting a new decade, and it's interesting because it causes me to reflect on the last decade. So I mentioned already, I've done this work for sixteen years, and we used

to never talk about it publicly. It was considered top secret, prietory stuff. But eight years ago we decided to start publishing some of our thoughts, and the more we shared, the richer our insights became. So it's really great to have conversations like this with you and Taylor. But what I've seen over the last eight years is this constant theme surrounding trust and mistrust and business government media has never been higher. But what we see for is that

the mistrust is starting to spill into our relationships. More specifically, loneliness. Loneliness is a global epidemic, and loneliness, you know, we'll think about loneliness kind of as a temporary state, but doctors actually say that loneliness doesn't just make you feel bad, it's bad for you. One surgeon general said that it is the equivalent of being obese or smoking fifteen cigarettes today. Wow,

that is quite a statistic. You know. Another thing in your report, Cheryl, that really stood out to me is that fifty eight percent of adults say they feel like they want to fight climate change, yet less than half are actually taking action. We think green transportation methods like electric cars or public transportation. Where are we in, you know, at least starting to get more on board with some of the EAVY driving methods. So what you're talking about

is a trend that we call the green paradox. You know, everyone says that they're actively changing or fighting climate change in big ways and small but what we see is that most Americans are only willing to what I should say both. It's of Americans that we survey are only willing to embrace sustainable initiatives if the inconvenience is small or nonexistent. So how do we close the gap between intention and action? And some of it is that people just don't want to make trade offs. They want things

to be simplified and easy. And e VS is tricky because well fifty six percent of the people we spoke to said more people should drive evs, only seventeen of the respondents actually they do, so that percentages remain really low. And we know that people don't fully understand the benefits. All they think is about is this tradeoff or compromise. So it's exciting because Board will introduce this year for the very first time in all electric new forward Mustang

Mache Support utility vehicle. The most people recognize Mustang as a performance vehicle like a pony car um paddles to the metal wind at your hair convertible. So to think about that brand legacy apply to a sport utility vehicle that happens to be an evy totally changed your notion of what you get. In other words, for our customers, that means you can't have milogion ruscle. You don't have

to compromise right. Well, and it's I'm so glad you brought that up because I have this sense for me reading your report, you sort of validate some things that I think we suspect, which is people sort of say one thing and do another, right, you know, they expect so much of a brand, and yet if it's the affordable choice, sir, it's the convenient choice, maybe they're going to go ahead and do that. Am I miss? Am? I missreading that In my two cynical about that, I'm

sad to say that I share in your cynicism. I mean, you know, some of it is is that climate change in general is difficult because it doesn't evoke the fight or flight instinct. It's abstract, it feels distant, so we don't always take it as urgently as we should. But I hadn't experienced the summer where I traveled to South Africa and the public restrooms of a number of the restaurants and beating places I went to had shut off their faucets and ask people to use hand sanitizer instead.

And it was just this reality. But like we talk about climate change as this distant thing um irregular weather patterns, but in a place like South Africa, they see it as a meaningful threat, in emminent threat to their food

and water supply. Cheryl, I, I wanna get some of your thoughts because you mentioned, you know, Ford specifics push into the electric vehicle market to help combat some of the climate issues that you just addressed, you know, the Mustang or even hearing the F one fifty trying to revamp it's e V lineup as well. How do you view forward in the midst of the e V push. You know, we got numbers out of Tesla this morning.

They just continue to dominate the e V space. Where do you see Ford sort of all in the EV pictures as playing a role. We actually really excited about our investment in this space. I mean Ford has um a long legacy of playing in the sustainability space, and that has everything to do with Bill Ford, who is the great grandson of Henry Ford and still actively involved with the company as the executive chair of our board.

And he has said, I have two passions in my life their automobiles and their environment, and he has spent his forty year career trying to reconcile the conflict between the two, and so he was pushing us to start. You know, he was actually pushed for the EV program long before you could actually make a solid business case for it. But what you said, you know, is that

not everyone wants to pay for it. There are those those people who see themselves as being like a deep green consumer, and then there are those who are less likely to jump on the bandwagon. But we have invested extraordinarily into our um EV program. We plan to develop develop new electric vehicles UM and we're working with partners new partners on this like rivian um to create new evs and Rivan is actually we've made a five million dollar investment with Rivan and rivian is bordered with Amazon

to help deliver packages in the future. So we think that there's really big opportunity here right all right, Thank you so much. Haryl Connolly, Chief futurists over at Ford, she joins on the phone from dearborn, Michigan. All right, well, here in New York City, we care about a spit relatively small number of things. Real estate is a very important one of them, Let's be honest. Oh, Shrek Garmiel

is real estate reporter for Bloomberg. She joins us on the phone from right here in New York City, O, Shrett, Happy new year. Great have you with us? Happy New year? Al Right, So what happened with Manhattan home sales? This has been quite something to watch over the past few years, because after that sky is the limit mentality for so long, it hasn't been quite that way, No, it hasn't. And I guess the top line number is Manhattan sales fell again.

And you know they've been falling for almost every quarter for the last two years except for one. Um and so they felt but they fell by the smallest amount, you know, And so it feels like the new reality. It takes usually eighteen months to take and it's just that finally sellers are kind of realizing that they can't just name any price and expect to have people outbid them. Um, that you may have to actually lower your price, and so it was just reflects that deals are getting done, um,

but the market is still flow Yeah. And what I liked about that is that if you're a seller and you're willing to acknowledge you have to come down a little bit in price, you're actually making buyers a little bit more encouraged and then they are coming to the table, right they are. And I think the tale of the tail for the last two years is that sales have been falling. They were falling like ten, eleven, twelve, very significant numbers, and that's because the buyers were just staying away.

They weren't even bothering to bid. They just assumed that, you know, this is overpriced. Sellers would just you know, laugh them off, and so they just didn't transact. And so the markets for the week seller buyers are still very wary of overpaying. They're incredibly wary overpaying. But the fact that the sales drop is so low suggests that there's a meeting of the minds. It's not that wide anymore. And so when you look at the numbers, sort of

a level down, what is selling better? You know, give us some price ranges for what seems to be moving better than others. Well, I guess New York price ranges are relative to the rest of the country. But in New York it's the under three million market, which actually New York is kind of work course housing, um. But under three millions where most of the sales were about

eight percent of the sales UM. Which sounds great, except for New York has a very very large glut of luxury properties that was really where all the construction was um in the last five years and and still happening. So there's a there's a real oversupply of of of properties above five million UM. Not a majority of the sales were not happening there um, but but yeah, under

three million is probably where things were more brisk UM. So, you know, some of the headwinds that we have discussed over the past couple of years are foreign buyer is not showing up in the way that they did before, or some of the tax changes that were predicted to have an impact and seemingly did. And then as you said, sort of this overbuilding that we saw on the luxury end, especially on the first to the foreign buyers and the tax changes, had those sort of ameliorated or have they

just worked their way through the system. Where do we stand on those factors? Oh, those are still very much weighing on on the market. So foreign buyers, um, they were, they were a very big source of virus for for some of this, really this luxury product. People would come in pay cast I mean for a decade plus, right, yeah, and so and and some might still be there, but there's really no urgency. There's so much to buy UM and I think you know some of some of it.

I mean, you have capital controls in some countries, so that making it harder to buy UM. So for the most part, they they're gone. UM. And then people who are left who might be buying this even as a pianetterror, you know, domestic buyers or pane terrors, or people who might want to live there. You've got I mean, you've

got thousands and thousands of units to choose from. You are in no rush, You're gonna be you know, you you want to you want to bargain and and obviously making a bargain when you're dealing, we're making a deal when you're talking about a property that's ten million, twelve million, thirteen million dollars that that might take longer than maybe if you're buying a two million dollar property. Um so, so it's a very slow moving market. That's a very big factor. Tax law as a factor, um, both on

the federal and on the state level. Um. On July one, New York State raised the closing costs um so, Basically, if you're buying and they made them the closing costs more progressive. So essentially the starting at two million dollars, you're paying a higher share of the closing costs in the mansion tax levies now a higher rate based on how expensive your property is. Then there's a transfer tax that also is higher. So the more expensive your property is,

the higher your closing costs are. Um. And then there's still talk right now in Albany when when the legislature reconvenes of imposing a Pieta tear tax, which would be an annual tax on second home properties five million and more. So there's probably some fear of that happening. Um So, there's still a lot of a lot of impact on the market. Right all right, a great summary. Thank you

so much for your reporting. Keenly watch for sure. Oh Shrek Carmiel is real estate reporter for Blueberg join us on the phone from New York City, talking Manhattan real estate road a journal. Yeah but you let me drive? Oh no, no, no no, no, please, I'll do the rod reveal. I want to drive a ball. Just drive, baby, the question, drive the drive to the globe community. Things well dry up, Jadn on Bloomberg Radio, and it is time for the Drive to the close. One of our faiths back with us.

David Dietz, President and chief investment Strategies for Point You Wealth Management, looking after about six point six billion dollars, He joins us on the phone from Summit, New Jersey. Happy New year, Mr Deeds, Same to you, Jason. All right, well, nice to catch up with you. You know, it's funny, and I don't know if it's funny. It's interesting maybe that we have talked for so long, you and I and you and others and me and others about this

notion of well, there's some geopolitical risk out there. Looks like we've got some geopolitical risk at this point. How does this play through the markets in your estimation? Well, certainly it is a wake up call for our all market participants to not be complacent. We've saw one of the best markets since two thousand thirteen. Last year, there may have been a hint of complacency in the markets.

But following the taking out of Iranian general last night, UM and what the implications that would that could ultimately have to the energy markets and peace in the world. UM Marcus reacted strongly, and I think people realize that if they were too far out on their skis, if they hadn't taken in consideration, what could happen. UH, they were under tremendous pressure today. And David is you take a look at the moves today, particularly the socks here

down one point six percent? Is this a buying opportunities there's finally a little bit of a pullback. Given everyone consensus is stocks post another decent year, So it could be a buying opportunity. It really depends where your portfolio is.

I'm afraid that awful lot of people are coming into this year very overweight stocks and underweight safer haven's, and for them it's probably not a buying opportunity because to the extent that UM the risk that they're taking is inconsistent with the type of shocks that periodically market experience like today, UM is a chance to perhaps to rethink where you are and take some chips off the table

from the risk assets. On the other hand, if you've been sitting in cash or have been too conservative, this is probably an opportunity to take advantage of pullbacks and stocks because I think that this is not derailing some very solid fundamentals as we come into two thousand twenty, and so talk to us about those fundamentals, because obviously earnings is at the core of all of this, and

you've you've mentioned that. But what do we expect, especially as we're getting into earning season in just a few in a matter of weeks and maybe even days. Yeah, absolutely so. Uh. You know, the backdrop, of course is a very dubbish fed and of course some positive what we believe to be resolutions to a number of trade dispeech worldwide. Um. You know what we have though, with the higher valuations, which I guess can be justified because the lower interest rates. UM, what we need here is

strong corporate earnings to take the market to the next level. UM. This past year, earnings were close to However, analysts looking forward to see earnings up corrupt ten percent, so evaluations meeting multiple for those earning state constant earnings increase ten percent, the market go up ten percent. Having said that, we're more conservative than that. We see earnings actually coming down

as the year progressive as people get more realistic. So we're advising our investors, gee, maybe six to eight percent earnings growth, which might give you a market at the end of the year up about six eight percent. And so, David, we love talking names with you, and I want to bring in one name that Taylor and now we're talking about just a few minutes ago, which is Wells Fargo.

I asked you about it every time and and the context I want to ask it in today is you've got a record number of are a a high number, the highest in quite some time of cell ratings for Wells Fargo. Maybe not the enthusiasm that Charlie Scharff is looking for. What's your case for Wells Fargo at this moment? Well, um, so, we actually are Bollosh and Wells Fargo and it's one of our top ten stocks for two thousand twenty. I'll

put that out there. Now. Why are we bullish? First of all, it's one of the best franchises UH in the country coast to coast, which gets in the most efficiencies for advertising and marketing and so forth. Um. Second, they have traditionally been conservative underwriters of debt and so therefore to the extent that we're getting near the end of the economic cycle and you need to pay attention

to credit quality there right there with you. Um. They also have a low exposure to investment banking and bond trading activities, which have often gotten other financial institutions cross wise when things got volatile. Um. And so you know, uh, you've also got a decent dividend of about four percent. What is the key issue? The key issue now is they've got a new leader who from the Bank of New York, but not quite as proven as some of

the legacy leaders. Um. And Second, of course, you still have the Federal Reserve which has ring fence the growth of Wells Fargo until they show some changing cultures. But that ultimately Jason could be one of the catalysts for a better Wells Fargo if the Federal Reserve lifts. At Finally, I think interest rates could be moving higher. That means net interest spreads expand. In this manna from heaven for financials.

David another stock they caught my eyes Fiser. I'm heading over to the JP Morgan Healthcare Conference in a few weeks right over here at the uh St Francis in San Francisco. What do you like about FISER given they've had what's been relatively anemic recent sales growth. Well, so, Taylor, there's there's there's a number of problems for the whole

healthcare sector. You know. Right at the top, of course is the political scene where politicians and both sides that are are very concerned about the rapid rise in healthcare costs. But nevertheless, when the time gets tough, go with the biggest player. And I think um Fiser has two key advantages that UM puts them, has to put them in

your portfolio. One, of course, is they spend more than anyone else on research and development, and is the type of business where the more shots on goal, the more you're doing, the more likely you're going to find that blackbuster drug for cancer or whatever. Second, you know, they have the largest salesforce not just in this country, but worldwide.

And of course a lot of the increase in spending is going to come from outside this country which want to enjoy some of the great health care that we have in this country, I'll be not inexpensive. Um, so I think they are very well positioned. Of course, Why you're waiting for things to get better, for new discoveries to be out there. You have a different end that's approaching four percent. It is a so called dog of the down this year, one of the top ten yielders.

So I think you are well paid to wait and be patient here, all right, David did is always good to catch up with you, President and chief investment Strategies. For a point, you Wealth Management looking after about six point six billion dollars there in Summit, New Jersey. That's where he joined us. Thanks for listening to Bloomberg Business Week. You can subscribe to the podcast on iTunes, SoundCloud, or

Bloomberg dot com. You can also listen to our radio show every weekday at two pm Eastern only on Bloomberg Radio m