Biogen Was The Train Wreck Everyone Saw Coming: Nisen (Podcast)

at Bloomberg dot com. Well, Biogen and its partner said they had decided to halt a late stage study of an experimental Alzheimer's disease drug, marking another setback for drug maker's efforts to find a therapy for the degenerative ailment that knocked the stock of Biogen down nearly thirty percent so far today. UH to help us dig deeper into this story, we welcome Max Nissan. Max's the biotech format and healthcare calumnist from Bloomberg Opinion. He joins us in

our Bloomberg eleven thirties three oh studios here in New York. So, Mac, Max, this is a huge deal for the company's stock down thirty What happened? So? This was one of the last really big late stage Alzheimer's studies that focused on the particular way of potentially treating the disease, focusing on on

the creation of amyloid beta plaques. But um, you know, there have been a number of previous failures, really prominent ones of a very expensive of late stage trials, most recently Elli Lily and then Roche gave up on a similar medicine. So it's something that you could have seen coming. But you know, Biogen has always pointed to data and some differences in its medicine and the way it's it ran its trials that that had people hoping that that

this might finally be the one to break through. But it's becoming more difficult to avoid the conclusion that this approaches is pretty fundamentally flawed in some way. Yeah, Max, to your credit, you wrote a column to this effect almost a year ago basically saying this is there's not really any evidence that this is going to work. In fact,

it sort of points to the opposite. And I'm just wondering, given given that, I mean, yes, you are prescient and your your insights are are very well taken, but it's just curious that it would remove of one third of the market value of the company on these results coming out, How does that has that square with reality? And what does that say about evaluations currently? So I think a lot of this has to do with the fact that, you know, if someone actually succeeded, it would be you know,

an instant blockbuster, an incredible scientific breakthrough. You know, the consensus sales for this medicine, which are supposedly risk adjusted for ten billion dollars a year, you know, and if you actually succeeded and had a clinically significant impact on Alzheimer's, that that estimate might be low. So it's that kind of tantalizing upside that had some people still invested even

if the likelihood of success was demonstrably pretty low. And there's also the fact that this has been kind of a huge focus of biogen not just this this big late stage trial, but a number of other medicines focusing either on this approach to Alzheimer's or Alzheimer's in general. So this kind of diminishes confidence in those further program ms and just in you know, the ability to tackle this disease anytime soon or with existing approaches in general.

So you kind of had to write off not just as you canna map this medicine, but other programs as well, and then also biogen strategy in general has been to focus on these kind of riskier neurological conditions, you know. And it's great from a kind of a human and scientific perspective that you're that they're doing that. You need someone to otherwise we're we're not going to make progress.

But from an investment perspective, h it's it's pretty scary, especially when their current big money maker and multiple scourses medicines is starting to kind of level out and decline. So that strategy looks even more risky right now than it did a day ago. So but if you if you talk about a market that is maybe ten billion dollars a year, I mean as monstrous. These companies cannot walk away from this, right, I mean even Biogen, who's just got whacked today in a stock market, they can't

really walk away, can they. I think they should consider walking away from related approaches um And one of their biggest Phase three Alzheimer's medicines is you know, another amyloid

beta focused program. And then the other kind of big area that people focusing this is on the towel protein that also has a pretty bad track record, So you really need to kind of look take a take a really hard look at those programs and think about whether there's a compelling reason to keep investing in them, or is it time to move on to approaches that you know are less validated and even risk here in much earlier stage, but to take a significant step away from

from a hypothesis that has kind of repeatedly proven to to fallen short, Max, I want to zoom out a little bit because this whole situation really raises a very important question about development of new drugs, uh at about the expense and the risk of them, but the necessity

for the public good. Uh and sort of where development should happen, right, I mean there is some development at universities, But I mean, can you give us a sense of companies of their approach of how much money they'll invest in R and D, Whether there is sort of a reliance on you know, universities, how how that works and

they determine sort of what what's worth the investment. Sure, I mean, there there's a lot of spending on R and D, both directly in terms of internal discovery and development pipelines and then externally in the form of acquisitions,

licensing deals with with little biotechs or or universities. Many of those little biotexs are spun out of universities, and how to go about doing that is an incredibly difficult question, one that I think pharma has a lot of a big way along ways to go in grappling with because more of their spending is increasingly directed at at smaller populations, so cancer and rare disease because you have you have pricing power there, and the trials are smaller and cheaper.

Alzheimer's trials are giant, expensive and they fail all the time. Okay when on all three fronts um but you know, this really raises a question, especially when you talk about say, vaccines that aren't very sexy and that our money losers to antibiotics, you know, things that actually everyone uses all the time and that are crucial life saving UH drugs.

It just raises a question, you know, what is the correct model for this with respect to either government intervention or sponsorship or rewarding or you know, how do you how do you incentivize these companies to do that. I do think there needs to be uh a kind of grand rethinking of of how what medicines we pay for

and why and how much we pay for them. If we continue to kind of leave the system of the status quo where we pay a lot for these medicines that treat a very small population, often not that effectively, and have antibiotics that are not fundamentally not profitable to develop. So there needs to be some kind of incentive, whether it's you know, the government makeing specific you know, specifically funding that research, some way to bring the prices up there.

There does need to be some kind of intervention otherwise we're going to continue a further down this path that we that our current market heavily incentivizes. So that's let's just go back to Alzheimer's. Is anybody doing it right? Is anybody making headway? Um? Not not not yet. Yeah, you know, there there are companies that are taking alternative approaches.

There's interest in this, but yeah, that that kind of basic research, but there's nothing right now that's kind of in a big potentially you know, the sort of child that could get a medicine approved that that is of a kind of dramatically different approach than things that we've seen that have failed in the past. So there's a lot of work yet to be done, and a lot of that's gonna end up having to be I think in in small biotechs and and at universities UM where

there's a little bit more more tolerance for failure. Uh So we'll see what happens. I continue to be hopeful, but where we're a long way off still. Max Nison, thank you so much for being with us. Max Neison is a Blomberg opinion columnist who covers the biotech and all things health topics. I gotta say his column back in July of last year, he said, this isn't the home runs. Some investors were looking forward respect to Alzheimer's

treatments that Biojean was trying to develop. The Federal Reserve sent a very clear message to markets yesterday they were not playing to high grades this year or possibly again in this credit cycle, signaling a very devish turn. The question is do they have some sort of insight into the U S economy that the rest of the market doesn't, and are they seeing something that is weaker than what

we have been talking about and seeing. Joining us now in our Bloomberg Interactive Broker Studios, God leving On, Chief economists for North America at the Conference Board. The Leading Economic Indicator Index came out today with an update that was better than expected, showing an actual increase in February to zero point two. Uh increasing to zero point I'm just wondering, is this indicating that the FED is responding to something else other than weakness in the economy. I

think so. I don't think the FED knows more than the rest of us about the economy and about the future of the economy. UM. I think that the weakness and economy that we are seeing right now is not a surprise. I think it's a reaction to a very traumatic December in the especially in retail sales and some of the declining industrial production and you orders that we are seeing since then. He is a result of that decline. But the fundamental terms of the economy I think are

not very different than they were three or four months ago. Um, And I think they're surprisingly dovish. Yeah. It's interesting to get the data that came up in the Leading Economic Indicator today from the Conference Board, better than expected, showing some strength. UM. So what do you think the FED is looking at to effectively double down on their dovishness if you will yesterday? What what what are they saying

that maybe we're not? Yeah. I just think they made the decision when they saw that in December that they are going to be blamed for a recession if it was to come, and they don't. They are scared and they don't want this responsibility. I think they because of that, they made the shift, and they're using the economic outlook is almost as an excuse to m justified their shift. But I don't think there is indeed the reason to be very dovish or very pessimistic about the future outlook.

Think they made a mistake. Um, I think it really depends on your ideology and other things. I think that thing. Yeah, I think that there is certainly more likelihood of increasing inflation then I think the FED leads us to believe.

Right now, I think if we close our eyes and use our imagination and use the forecast of most economist, what we'll get is an economy that is growing by two to two and a half percent in the next six months or so, labor market tightening further, wages accelerating further, and in that scenario, I think having a higher inflation is a very likely outcome is that bad. I mean, higher wages isn't very good thing, that's a good So again,

it depends what your goals are. If if your main goal is to control inflation and make sure that it doesn't go above what your comforts on, then I think this is a mistake. If you're willing to let inflation go higher or risk that inflation go higher, but have more people joined the labor market and having higher wages

than I think that's a very legitimate decision. So to what extent do you think the FED chairman power are being influenced by some of the geopolitical issues in the world, China slowing down, trade issues with China, European Union certainly the economic weakness there and Brexit just adding on to it. How much do you think they took those issues into account in kind of surprising the market with their town yesterday. I think it's it's a factor that affects the outlook definitely,

but it's not something that is new. The weakening in China and Europe has been going on for several months. I think, if anything, in terms of the fundamentals, they are good news. In recent months, the end of the down the increasing stock prices, the improvement or the smaller chances of a trade war with China. I think all of those are good things, and I think that would be reflected in the outlook going forward. I'm still going back to inflation, the idea that inflation could pick up

more than people expect later this year. What's going to be driving that. Why is this time different, this late in the cycle, since we haven't seen a real acceleration inflation until now, right, I think we didn't have as fast of a wage growth as we have right now. I think the in twenty eighteen, it's the first time that we actually saw a visible increasing wages in the main measures, they're getting close to three and a half percent. And I think also revenues will grow more slowly in

simply because the economy will slow down. So when you have an increase in labor cost and slow down in revenue, that will put a significant pressure on profits, and companies in many cases will choose to shift some of the costs to the consumer. So I think I think we now have a better chance of getting higher inflation than any time in this expansion. God Levanon, thank you so much.

We appreciate you. Coming in god Lebanon, chief Economist for North America for the conference board, joining us in our Bloomberg Interactive Broker studio. Well, yesterday we had the FED double down on its dobish stance, perhaps maybe seeing something in the economy that the rest of us don't see. To dig into that a little bit more, we welcome

our guest Bill Zox. Bill is the chief investment Officer of fixed income at Diamond Hill Capital Management approximate nineteen billion dollars under management, based in Columbus, Ohio, but he joins us here in a Bloomberg Interactive Broker studio. Bill welcomed to our studio. What did you take away from the Fed's report and from the comments from chair Chairman Pal yesterday? Well, I was surprised. I think the FED

was clearly too tight in December. The Fed needs to pay attention to market signals, but in this case, now the Fed is paying too much attention to market signals. I think that the Fed is overcorrected and gone too far in the other direction, given the market even more than what it really wants or needs at this stage. Well,

what's the consequence, I mean, what's the what's the detrimental consequence. Well, I think it's it's not a good situation when you've basically priced volatility out of all assets are largely priced volatility out. I think it's better when assets are are priced for some volatility. So basically, the fear here is that if the FED holds rates too long, it can create I don't want to say bubbles, but certainly excesses and different areas in different markets. And people point to

stocks or HW yield bonds. But the interesting thing is is that following the FED meeting, you didn't really see that gut reaction. You actually saw the knee jerk was risk off and you saw credit spreads widen. Actually, so how do you sort of square these sort of uh, these these these developments. Well, we've seen such a tremendous move back in risk assets since late last year, and I think if you look at the treasury market, should high yield spreads are about four d basis points right now.

If you look at the treasury market, high old spreads should probably be somewhat wider than that. There's a disconnect between the two markets. So where are you thinking about? Where do you see opportunity? Where do you see value. I know you principally play in the high yield market. Is that right? So where are you seeing some opportunity here?

Principally in the high yield market? But uh, ironically, as high yield investors are moving up in quality, they're making double B corporate bonds very rich, and his investment grade investors are moving up in quality, they're actually making triple B bonds, certain triple B bonds attractive. So one theme is to sell double bees that are priced like investment grade and buy triple bees that are priced like high yield. That's really interesting going forward, I'm wondering, are we out

of Goldilocks? Where is the FED remains? Do wish? Uh? And and even stops it's a balance sheet roll off that won't be as supportive for credit going forward because of how much it's already rallied. That's exactly right. I think Goldilocks was basically priced into the market, and now, uh, for the data to confirm a Goldilocks scenario like that is very unlikely. So that means that bad news will be bad news when it comes to the economy. I think that's right. So you know, one of the things

I think a lot of people. Obviously, we're surprised. I think I'm sensing your sense of surprise about how doubbish the FED was. You say, do you think they are seeing something that maybe the market is not, and if so, what do you think that could be. I don't think that's the case, but the market is very concerned about that. Uh, you know, I think that. I just don't understand. The FED was not paying enough attention to market signals in December.

Now they're paying too much attention. That's all I can say. I thought I thought it should be more of a give and take with the markets. When you talk about the high old bond market, there have been a number of idiosyncratic moves. It's sort of up moving from a macro driven market to a very micro driven market with specific companies either doing really well, they're dead, or really poorly. I'm just wondering, specifically within sectors companies, where do you

see the opportunities right now? Yeah, you know, I'll give you one example that's sort of interesting and there to Detroit companies. It's consistent with a theme that I just mentioned. It's Motor City, a single casino credit in Detroit and Ford Motor and we're buying Ford motor and we've sold motor City. That's what I was talking about before. Motor City, a double B low double be credit priced inside of

two d basis points credit spread. Forward opened up the investment grade market this year with a three year bond priced at three basis points over treasury. So there's a disconnect for you. Are there some sectors in the high yield to sectors within the hig yield that you like right now? Um or? Is everything a little rich from your perspective? I mean it's you have to be careful. We're late cycle. You've got to be careful in the

high yield market. But we always like financials more than our peers, and and we definitely find things to do in financials. I'll give you another Detroit Credit Credit Acceptance, a subprime auto lender, which is a very well managed company. You're bullish on Detroit? Do we do like Detroit? Even though from Columbus, Ohio? I like Detroit Credits. So, Bill, you said late cycle. When do you expect the cycle to turn and defaults to really meaningfully pick up? Yeah?

I mean that that that's hard to call. Uh, you know, I think that the cycle the FED is doing what it can to extend the cycle, but things can shift very quickly and and markets will probably drive it like they did in the fourth quarter, where fundamentally not a lot was happening, but the massive increase in volatility and markets increased the probability of recession quite dramatically. Thank you

so much for being with us. Bill's ocks. He is the chief Investment Officer of fixed Income at Diamond Hill Capital Management. Joining us here in our Bloomberg Interactive Brokers Studios Well Levi Strauss. They priced their ip O last night at seventeen dollars per share, that was above the I p O range of fourteen and sixteen, and looking on my Bloomberg terminal right now, the stock is not open for trading yet today, but it is indicating even higher at twenty and a half to twenty one and

a half is the range. So clearly a lot of investor appetite for this name. To help us kind breakdown the deal and take a look at the company in the space is Hen razutas Hen is the apparel and Footwell Footwear an also Bloomberg Intelligence. He joins us on our Bloomberg Interactive Brooker's studio. Hen, thanks so much for coming in. So what does the market really like about this name? I mean, again, it seems like a lot of demand above where investors are or the investment bankers

initially put the ip O range on, right. So obviously a big name with a long legacy, big history in the apparel space. Um that we don't see too many I p o s and in the space in the last year's you know, we would more companies bankrupt or

going private. So that's that's a that's unusual. What I think people like about it is a very uh, relatively low valuation they put on the deal in the first place, UM on an if it that basis, it was about eight and a half UM, where the industry averages around eleven. So I think that's kind of the movement we've seen this morning. Why are they doing an IPO or why have they just one one? I guess and we're waiting to see how it actually trades. But why now? Right?

So eve Strice is a company, you know, family owned company house family, um, you know own it for ages and I think you know, to have some liquidity in their stake they have in the company. They're they're putting out the percent of the company. So what is all right, So what's the investment case here is this? Is this like any kind of growth in this business? UM? What

are investors buying here? Right? So first of all, the core business is the bottoms, right that the genes, it's about sev The revenue, it's a it's a big category, all right, it's about hundred billion dollars. And then I think about this specific company, UM a lot like Nike what we see in Athletic. In every region that they operate there they hold the number one position. So in the US it is almost thirteen percent of market share just one company. UH in any other region are number one.

Europe they're only number two. So I think people are looking at it saying, you know, it's the best in breed in that specific category that's to start. UM. I think after they're going public, they do have opportunities to venture out of the core business, to go into there's a story today about going into tops, sweatshirt, T shirts, etcetera. UM, accessories, footwear, those are all under penetary categories that they can use

the brand name to venture into. This is such an interesting I p o at a time when retail is called under question in an Amazon era, when branding doesn't necessarily mean quite as much. Uh, for them to sort of bring back the nostalgia of the nineties eighties and say anything or you know, the blue jeans and the gene jacket, the jean shirts, etcetera. Uh, it is sort

of interesting. I actually want to go there is it Does branding matter in an era of Amazon when people just are really looking for the item and not necessarily the name. Well, absolutely, I think branding matters, and I think you know that's something that Paul talked about yesterday and turn on Netflix. Content is a king right. So in our our business, um so retail, the brands are

the content. So for them it doesn't necessarily you know, matters if you sell it through the materior department stores at J. C. Penny or Macy's, or you sell it on your own website, or you sell it the Amazon. Um it really you can shift between channels and actually moving away from meteor department stores, moving to your own channels, selling it on your website, you sell it for a higher price point, you sell it for a higher margin. Um,

you do have to pay fulfillment shipping, et cetera. UM, but it does give you a lot of growth opportunities that didn't have before. So Levi Strauss obviously is an iconic name here in the United States, cowboys and all that kind of stuff. How has that brand traveled outside of the US. What percentage of the sales are outside of the US And is that an area they think they can grow? Right, So it's it's about outside the US. UM,

it's definitely an area they that can grow. They're really penetrated UM in a lot of different markets globally, UM or Asia. UM. You know, China, it's only two percent on their total sales. So obviously China is a much larger market than that. And traditionally what we've seen with China with American brands is they come in, they get the brand perception in the market can be a lot more premium than what it's getting here in the US U, so they might have, you know, more price power in

markets like Asia. So there's definitely opportunities there. Can we just touch quickly on Nike because it is March madness, right, So is Nike really benefiting here or are we going to have a potential problem because of the little snaffoo in the speaker situation. Right, let's hope that no shoes are going to be blowed up. I mean it's not

on the first day and definitely not the Duke. Um. You know, Nike does well every year in the ncu W in terms of the number of teams that they're sponsoring, and in the end of the day, it comes down to how much exposure they're getting. And we put out a number out there that we calculated it based on, um the number of of of how much time you the logos are visible on the live broadcast the entire n C double A. It's probably equivalent about two fifty

million dollars in advertising dollars. Yeah, that's it's a big number. And my jaw just dropped because the thing that that you can calculate sort the value of every second on a court. That's right, And that's why they're paying the big bucks to school. They are and they're putting you know, they're putting a lot of money and behind those those teams. Um, Nike's leading the you know, over fifty of the teams, but under Armer has the teams. That's the record number

for them. Um, I think they wish that the rest of the business we do as as good as as the number of teams they they sponsoring. Yeah, Is, thanks you so much for being with us. Is is the apparel and footwear analyst for Bloomberg Intelligence. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at PT Sweeney. I'm Lisa abram Woy. It's I'm on Twitter at Lisa A.

Bramwoit's one before the podcast. You can always catch us worldwide on Bloomberg Radio.