Gilead Virus Treatment Is Promising But No Silver Bullet Yet

at Bloomberg dot com. Well. One of the things that investors are looking for when they think about this pandemic and the coronavirus is what is going to be the role of biotech and big farm in coming up with some treatments, ultimately a vaccine. There's some decent news out of Gilead Sciences today. They may have on they may be on to something to give us a sense of kind of where we are with the healthcare system and the biotech companies and the farmer companies. Who welcome our

good friends, San Fazelli. San Fazeli is a director research for Bloomberg Intelligence, but more importantly his day job, he is one of the top healthcare analysts. He's based in London. Uh So, Sam, thanks so much for joining us. Give us a little sense of what news was out of Guilliad. How important is it, pipaul, I hope you're all well, and so obviously we've got two bits of news that have just come out. What Gillyad itself put out was a try test that they're done to try and see

where they are. Five days of the of the drug is as good as ten days of their drug. Obviously, nobody wants to be going in for a daily infusion of a drug more than they have to. So in that study that they reported, which was in very severe patients, apparently five days was just as good as ten days. A lot of people are now trying to read between the lines, look at the number of patients who recovered or didn't recover, and trying to understand whether the drug

works from that trial. But of course it wasn't controlled, and you know what what our motto is, if it's not controlled, if it's not randomized, you really have to wait until you see that data. The other bit of news is this headline thing that we've seen now I think Max talked about earlier on the radio to that was that the National Institute for Allergy and Infectious Diseases has got this trial that is randomized as apparently worked in four hundred patients, and there's going to be some

data on that. Now that's a proper trial that's testing ten days worth of treatment with this drug ram deservie. So the problem is we just don't know what the data is. Sam. Just taking a step back, I want to understand the importance of desivier being successful. In other words, how broadly can this be used if it's something that has to be administered in a hospital like setting for only the most severe patients. Is it a game changer when it comes to the pandemic. What a great question.

At the end of the day, I think we would all love to have a single game changer. I would be very happy to see this drug be that single game changer. But it's not going to help you and I sitting at home feel secure to go out. All we know is that any of these drugs that are being tested or drugs that are going to help us hopefully get better faster without suffering too much once we've got the disease, if we get the disease. So that's

what they're all being tested for. The rush drug, the fier drugs, the astro drug, the regeneral and Santa fe drugs to make us feel really good in game change everything. You still need that vaccine that gives you protection. So let's go there, Sam. I think you know a lot of the officials that we all hear about, whether the government officials or health care officials, they seem to have kind of coalesced around this twelve the eighteen months time

frame for coming up with a vaccine. To me, you know, just having you know a little bit of experience that seems very short, that seems like I'm more used to a number of years give us a sense of kind of how you think the timing of a vaccine might play out. Right, So I have to continue to be humble here in that I haven't been in allow but

with a prepetting my hand for twenty years. But there, and you listen to a lot of scientists, a lot of top scientists from the Script's Institute, from Oxford University, and they all are very optimistic given what they know about the virus. Not all viruses, thank god, are created equally. And what I heard one virologist say, you know, if this was on the scale of HIV being a genius, this is one of flunked high school. IM glad to hear that with the immune system. I love that comment.

So if that is true and our technologies will work, you know, with the with the everything that's been thrown at developing a vaccine, with all these companies ranging from biotechs to the big shots in vaccine business visor Glaxo, Santa Fe and merk Um, I hope that they are right. But you still have to get everything has to work out for this to be to be a successful at

that top sort of time frame. Sam, there's also a question of the pipeline of production here and how quickly once there is a vaccine it can get mass produced and distribute it to enough people to get some sort of herd immunity. What do we know on that front in terms of the cooperation internationally with say what's going

on in Oxford where they're starting human trials. So Oxford seems to be doing some interesting stuff here and that they're they're not really necessarily interested in being a vaccine company themselves, you know, just an announcement today that the Serium Institute of India is going to produce their vaccine and they're thinking of, well, if we're gonna do that, we're gonna keep it for India. I'm assuming that vaccine, if it's successful, would be available to whoever wants to

take it on and manufacture it. So I wouldn't be surprised to see more countries or more companies from different countries coming up and saying, right, we'll have a go

at that. But at the end of the day, with regards to national politics versus um vaccines and who manufactures, what I think what we should have to do is just wait and see who can actually get that stuff done and then worry about how it's going to get spread out during If you think about the volumes that these companies are talking about, we'll have like two billion doses of vaccine next year if you add Johnson and Johnson to collect so to stand off for you to

fighter is a big numbers. So I don't think there would be a shortage really, So, Sam, what are some of the next milestones we should be on the lookout for. Is it just company by company putting out kind of their tests or is there anything more I guess maybe

centralized that we should be looking for. No. So, from the treatment of vaccine side of things that we're talking about, we have In the next two to three months, there will be lots of data boys coming out starting hopefully with the data, the actual data safety and efficacy and safety against safety. Remember, these are a lot of these vaccines are going to have to go into people who

are not sick. He can't give them the risk of an ailment um for Within the next two to three months, we'll hear a lot of proof of concept is the best phrase to call it for vaccines. Fires are very cleanly described some of the methods that are going to use to figure out whether they think something that they've got is UM protective potentially UM. And then you've got the drugs that will read that. Rush will have read that in early summer June time for their Actemra drug.

You've got that severe that will have some data maybe later today or certainly in the next few weeks. Then you've got asked to Zeneca with cal Quin's. Then you've got Friday with this antivirals. So there's quite a lot of news that I think we'll be sitting here on a weekly basis, hopefully talking to each other about successes. Well, hopefully we will get a chance to speak with you

again soon. Sam Fazli Had of the E M E. A Bloomberg intelligence effort, as well as a senior pharmaceutical analyst, really helpful insights to understand the progress being made looking for that silver bullet to allow life to return to normal. There's a huge discrepancy between the economic data that we're getting and the market action that we're seeing, with stocks posting one of its biggest twenty five day rallies in history. I want to bring this to you from City Groups

Matt King. The gap between markets and data is the largest on record. With limitless liquidity meets spiraling insolvency, there's bound to be a long term price. Joining us now to weigh in on what we can expect going forward. Lisa shall It joins us now fantastic name, chief investment Officer of Wealth Management from Morgan Stanley with two and

a half trillion dollars of assets under management. Lisa I wanted to start there because a lot of people say the only reason that markets are gaining is because the FED is printing money. Do you agree? Well, certainly, you know FED liquidity has been absolutely key to these markets really over the last quite frankly eleven years um since

you know, the financial crisis. UH and and liquidity was operative in in the search that we saw in January to the February nineteenth high UH and it's probably you know, playing a key part in in building confidence in supporting virtually every corner of the global fixed income market. UH and that obviously helps stocks. But really from our perspective, what we've seen over the last four or five days is really a reaction um to what markets always positively

react to, and that is upside surprise. And the upside surprise yere appears to be the pace at which UH, the US is going to reopen on most of the base case scenarios. UM. You know that we had seen when this crisis first hit and we locked down in March, where that the entire second quarter would be really decimated. I know here at Morgan Stanley we were looking for you know, second quarter GDP to annualize it down, you know,

just horrific numbers. But I think, um, you know, and and not really have have worked at people coming back to work until the June you know and July timeframes. The fact that we're now having folks even like Clomo talking about potential reopening even in parts of New York State by May fis Keith. I do believe it is an upside surprise of the market, and that's part of

what you're seeing. And as a result, you're seeing sector rotation underneath the surface, meaning the stocks that are leading are not simply those safe, defensive, secular growth stocks, but we are seeing some recovery in some of those you know, really damaged cyclical names, uh and small caps um that perhaps um, you know, we haven't seen much action in for quite a while, so at least I know the uh, we're in the midst of earning season here, are there

any valid takeaways here or assist as a quarter and maybe even next quarter you just kind of you know, flushed down the toilet and really try to look towards the back end of this year. And so, you know, in terms of what the market is looking through, I think the market is absolutely positively looking through the macro economic data. But these earnings data, I think is being

really scrubbed and scrutinized by analysts. Not so much for our people making or missing the numbers, uh, you know, on on the margin by pennies, right, But what people are really looking for is what how resilient are the margins, are the profit margin structures, and so what might we expect and how are we going to pound our calculators.

While it's great, the sentiment is driving you know, enthusiasm at the minute, uh, and we've had, you know, the upside surprises that maybe we will in fact reopen sooner than people thought. Um, we're gonna have to at some point reconcile. Uh, you know the level of the market meaning you know, hundred or even three thousand on the s SP five hundred with where earnings are going, uh,

and that price earnings ratio. So it's very fascinating because we've seen prices rebound from the March three low by about thirty percent, but we've seen earnings estimate to drop right from expectations of potential growth of ten percent year over year back in January UM two profits that that now look like they're going to drop by tent So

that means huge multiple expansion. So I think analysts are scrutinizing UM the the earnings this quarter quite closely and trying to nail down what is the SMP fire profit outlook for this year? Is it one four? Is it one thirty, is it one fifty? You know what is it? So that we can get a sense of you know, what is the valuation in this market? What is that to the ratio? So, Lisa, just about a minute here, I'm wondering what you're advising clients to do to sort

of hold a sixty forty type portfolio. Get more defensive, get more aggressive. UM. So our advice in this in this UM time has been very clear. UM. We want our clients out of indicase like the SMP fire, which are passive, which we think are too concentrated in in the largest megacap five TEX stocks. We want them to be active stock pickers, and we want that stock picking to be concentrated in cyclical value and small cap sectors like financials, like industrials like material um and and even

UH energy. UM, it's time for stock picking, and it is time to go where you're getting paid to take these risks because the stocks are very cheap. Lisa Charatte, thank you so much for joining us. As always, we appreciate your thoughts and commentary. Lisa Chalotte, chief Investment Officer,

Wealth Management at Morgan Stanley joining us on the phone. Uh, and you know interesting Lisa talking about analysts really are looking at these earnings and trying to get a sense of what this market can earn uh in one because you know, you could really make the argument that the

market is expensive or cheap. So it's uh. Investors are really trying to dig down and get a sense of whether the earnings growth rate year over year is that flat, is a minus ten percent kind of where the market is, where the SMP earnings all right now or is it maybe even uh something worse, And so trying evaluation uh does matter uh, certainly for this market. Well, this is the week that many of the tech bell Weather names

report their quarterly numbers. We had some better than expected results from Google last night, stock trading up about eight percent today, so to had a sense of what's going on in the world a big tech we welcome David Garrity, chief market strategist for Laibol and Company, also a partner at bt block joining us. David, thanks so much for

joining us. Let's start with Google last night, some decent numbers, but Ruth Poor at the CFL warned that March was an ugly quarter for ad revenue in in April as well, so are you a little surprised by the performance of the stock today. Um, to the extent of the revenue numbers actually came in better than what the street has been expecting, and the fact that they're good indications that non search ad related segments we're putting up solid growth.

I mean, you're looking at YouTube up in revenue terms year over year, Google's cloud operations up. You know, this says that there's growth for Google for alphabet despite the fact that you know, in March, search and display at revenue dropped more than and obviously April doesn't look to be much better, if at all. Okay, so things are really rough for Google on the AD side, they were able to compensate with their cloud spending their YouTube traffic.

I'm struggling to understand the lift that that has given, apparently to Facebook shares, which report after the bell there shares up five point nine percent. Where's their cloud that can offset the decline and ad ever revenue? Yeah, no, no, no, Obviously Facebook is not involved in the cloud computing market, um to the extent that a Google or an Amazon or Microsoft are, So you know, to that extent, Facebook

really is going to have to live or die. Um, in large part based upon its advertising revenues, which you know certainly they're involved in the same market as alphabet Google's operations. And if we look at sort of how pricing on ad inventory on Facebook properties, Facebook and Instagram we're developing over the course of um you know, in the year to date, you've seen numbers breakdown appreciably and we're looking in a situation here where April pricing levels

are worse than March. Okay, so what does that mean? I mean, how long can these tech giants continue to gain in an environment where their main source of revenue

is plummeting? Now? I mean, I would argue it's it's going to be that investors are going to have to be stock pickers when it comes to looking at tech, and they're going to have to look at the companies that have diversified operations and a range of markets, not so much companies that are more pure plays in specific markets, such as Facebook is with respect to consumer um advertising.

You know clearly where the situation here where in Facebook is probably gonna try and your up investors by pointing to its recent investment in geo platforms, the five point seven billion dollars they spent last week. Um, you know, this is going to build on Facebook's already big position in the world's second biggest internet market in India. But you know, really, we think it's gonna be hard for Facebook to get people's attention, investors, tension to move away

from the fact that they're going to have weak revenue. Um, you know, it's expected that it's possible that Facebook may show their first quarterly year on your revenue decline. So, David, So, as we think about Facebook and Google on in terms of advertising perspective, there's a school thought out there that says, yeah, we know that digital media has been taken share from

traditional media, whether it's broadcast or cable television. Uh, do you think that trend may accelerate here during this unusual time we're seeing here. No, I would certainly indicate that

that's likely the case. And looking away from the tech sector, looking at uh, you know, the global leading advertising company or advertising agency, you know, WPP Group, I mean there came up with their results and certainly you know, they were showing the same evaporation in terms of the end markets and their customers inclination to spend that Certainly, you know,

Google was picking up. So you know, from that standpoint, we think that those means that show the best ability to target individual consumers at scale, in which certainly is what digital does, are going to be prospering in this environment. So when we look at Google and let me look at Facebook act to close today, you know we're seeing, you know, the best houses in a bad neighborhood, all right, So you see the potential for Facebook to have a

serious hit and Google to face worse times ahead. I want to shift gears a little bit to the ones that are doing really well. And I'm thinking of Amazon and Microsoft. We just look at the tech giants and I'm trying to understand how big they will be allowed to get. I'm wondering, as we're expecting a wave of consolidation in this era of the haves and the have nots, do you expect a wave of of sort of tie ups and mergers and acquisitions that perhaps wouldn't have been

allowed before this had all happened. I think to the extent that you know, regulators, in this environment you become more concerned about trying and other authorities within the government more concerned about trying to maintain employment levels that yeah, the pace of consolidation across the range of sectors is entirely possible. When we look at Amazon's share of retail spending in the US, you know, it's still at a level where it's so low that it wouldn't necessarily represents

an issue from an antitrust perspective. Now that said, there have been investigations have been opened, um in a number of different areas looking at Amazon's anti competitive practices where you have third party vendors who are selling products off the Amazon platforms, and yet Amazon is being accused of taking that consumer data and using it to develop or their customer data and using that to develop through and competing Amazon product. So it's interesting here. I mean, we're

gonna get Amazon after the close later this week. Boy, this is a stock that's out or near it's all time high. Seems like, uh, the silver lining this pandemic is playing right into the hands of Amazon. What do you expect to hear from Amazon when they do report, David, I think Amazon, Um, you know, certainly they've been talking about what they've been doing to expand their footprint, talking about how they've been hiring people within their warehouse operations.

I mean I would hope from a labor perspective that Amazon would be talking more significantly about what they're doing to provide, you know, substantial protection for these workers health. Although I would probably say that, you know, when we look at Amazon versus meat packing plants, you know, Amazon is coming out as a stellar performer, whereas obviously people

in the beat packing plants are getting seriously ill. But away from that, I think that you know, Amazon has a chance maybe to talk about some of the areas where they want to expand, potentially in terms of looking at healthcare, new markets. Um. So you know, there's certainly an environment here where Amazon as one of the leading technology but he has the opportunity to accelerate its advance in this downturn in the new markets and gain share

in its existing businesses. David Garritty, thank you so much for being with us. David Garritty, chief market strategist at laid Law and Company, also a partner at bt block, joining us to talk big tech in this pivotal week for big tech, and Paul just following up on the

antitrust point. I think that this is something a growing number of people are talking about, the wave of consolidation, and there was a story on Bloomberg Law yesterday UH speaking to antitrust attorneys who expect the government to relax some of the regulations in order to preserve the jobs. Basically, if a bigger, better capitalized company wants to buy up a smaller one, they will be more amenable to that idea based on the idea that it will be better

for the economy. I just wonder, especially with these tech behemoths, I wonder what that means for the landscape going forward in terms of how much more dominance the biggest players will have. I read something I can remember which analyst was on Wall Street on the cell side, suggesting that the pandemic one of the silver linings is that it takes the big tech risk of regulation, puts it on the back burner because the government has a lot more

things focusing on right now. Silver lining perhaps if you are a long shareholder in those stocks starting to get earnings coming out of Industrial America, GE and Boeing UH. To help us chat through some of these, we turned to our good friend Brooks Sutherland. She's a deal's and industrials calumnist for Bloomberg Opinion. She joins us on the phone from Kansas. So, Brook, let's start with Bowing. You know, the concern here is, first you had to seven thirty

seven max. Now, obviously you've got the pandemic, which is basically shut down aviation. What is the overall impact going to be on Bowing. I know they're cutting their workforce, they're they're they're getting some loans, but this sounds like it could really be fundamentally challenging for Bowing, not just in the nearer term, but maybe the intermediate long term

as well. Noway, I think that's absolutely the case. I mean, the CEO Dave caljoun Is said he doesn't expect to get back to nineteen levels of travel demand, and you know for maybe as long as three years, and then you know, at that point to see growth for new airplanes, we may still be waiting another couple of years. And I think you're seeing that reality in the production cuts that they announced today, which are pretty severe, and of course follow Airbuses decision to cut its own production by

about a third. Um. You know, I don't think that they would be taking these kinds of job actions if not for you know, the very stark situation that we're facing over m you know, a longer period um, you know, to going credit with everything that happened with the seven thirty seven n they kept their workforce largely intact, and so to see them taking this kind of stuff, I think really speaks to the real crisis that we're facing

in the aviation industry right now. Brook. I keep going back to this meme or this idea that chief executive officers don't want to let a good crisis go to waste, and they take moves that they may otherwise have wanted to make beforehand, but might have been less politically expedient, and now can be sort of washed into the fold

of the crisis. And I'm wondering if that's also one way to view the cuts that we're seeing Boeing as well as clients of Boeing saying, do you know what we're gonna go with air Bus, especially after everything with seven thirty seven max Jet debacle. Yeah, So a couple of things on that front. I mean, I think if you look at the industrial sector more broadly, I've actually been very surprised at the degree to which companies are

using furloughs rather than layoffs. Um And I think that speaks to a you know, these companies have got a lot of costs, a lot of jobs over the past couple of years, including very recently in response to the US China trade war. UM. I think they don't want to be seen as um, you know, boogeymen, given the nature of the crisis that we're facing in the in the pandemic that's happening. But they're also want to be

prepared for when demand comes back to life. UM. And I do think some of those other sectors could see that happen a lot faster than in the aviation sector. Now. I don't think these cuts that Bowing is making UM would be you know, cuts that they would have made if if not for the coronavirus crisis. I think it's very clearly a response to the demand that is falling off.

But in terms of aircraft decisions, certainly, the you know, fact that the seven thirty seven max grounding has persisted for more than a year does open up more options to airlines who are reviewing their order books. Those are more easy to cancel at this point than an order

for airbus jets. So if you think about the longer term here and what the competitive dynamic looks like it certainly does seem to me at least that when we come out the other side of this and we start talking about growth again, Airbus isn't a much better position to capitalize on that than Bowing is. Right now, Brook, let's spend a minute or so on g E. I know the story isn't so much about EPs or revenue, it's more about free cash flow. What's the key takeaway there? Yeah,

I'm not a great number. More than a two billion burned in free cash flow this quarter, and they say about one billion of that is because of the coronavirus. So where GE gets hit hit hit here, excuse me, um, is they primarily make money through their aviation business. And the way that the aviation business does that is by servicing and providing spare parts to airplanes. So with all of these airplanes grounded, GE no longer needs to do that.

And what you're concerned about there over the long term is the tas of retirements. They've seen a lot of airlines come out and say we're moss following these older, costlier jets. That changes the longer term economics for g e s aftermarket business. And you have to wonder, you know, what does that cash flow look like when it does

start coming back. And I will say g is probably better position than some other companies here because it's engines are primarily on younger, narrow body planes and those are the planes that are going to be most likely to stick around and most likely to come back relatively quickly. But certainly they have a lot of challenges here in the near term, and you know, it does sort of put the brakes on the turnaround effort that was starting to show fruition for CEO Larry cold brook Sutherland. Thank

you so much for joining us. Enjoy Kansas brook Sutherland deals an industrials columnist for Bloomberg Opinion. Uh talking about that in Boeing and GE I thought it was so interesting. She's saying that there are a lot of these industrial giants are choosing furloughs as that are expecting to bring everyone back on the other side, or perhaps are recognizing the political pressure to be perhaps I don't know, a little bit more amenable to keeping jobs giving it the

state of the current economy. 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 Woyd's I'm on Twitter at Lisa Abram Woyds One. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio