Surveillance: Eli Lilly CEO Says Science Will Win

out of Purdue. He runs a shop called Eli Lily in his Indiana and they are dominant in our history of finding solutions, whether it's insulin arythemias, and particularly what Lily did on polio vaccine in nineteen was absolutely original, absolutely historic. The phrase from that time is safe, effective, impotent. That is the great hope right now for all of us. Dave Ricks, how close are we too? Safe, effective and potent? Well,

thanks for having me on. It's obviously a time when the importance of our scientists work is is at a high. Um as you mentioned back to our days with the polio vaccine, that's really in our blood here at Lily has to respond to these public health crisis is um we're working on the medicine side UM and I think we are close to understanding that treatment with monoclonal antibodies, which we're making and others are early in the disease,

can make a significant difference. We not STATA earlier in October regarding that, and we've got an application at the FDA reviewing that that very data which therapy has the best outcome where we can say we have a vaccine. Peter Hotez at Baylor Medicine is saying simply, we need something cheap in old school. John spoke with Nevarties this morning. There's modern all the rest of them. Which is the approach, Mr Ricks, It seems to be the one that will

get us to a societal vaccine. Well, I think on the vaccine side, the good news is there's lots of approaches being tried. You know, in our business, we need data. I don't think it makes sense to guess um at which would would be the most effective. The good news is will know that, and we'll know that pretty soon.

The early ones, as you pointed out, of the m R and a UM a new technology that's never produced a human vaccine before, but looks pretty promising in terms of the ability to generate our own antibody response, and that's a good sign I think for defeating the virus or preventing infectious spread. We don't know how long that

will last. There's other approaches that have produced vaccines, modified virus UM, taking different viruses and mounting elements of the covid virus on them UM, and those are more proven. They are a little harder to scale, but they also may produce a good response. Mostly, I'm confident because we have so many shots on goal um really an unprecedented number so quickly. So I think science will win in

the end. It's just hard to pick the winner at this point in the horse rage, John, that's a hockey phrase there. That's not a soccer phrase, because there's so few good soccer that's a hockey phraser from this. You don't know what Dave meant. I'm just going to interpret it as a soccer phrase. It still makes sense. Think you mentioned the word scale, scale, and I want to return to antibody therapies and please help me understand how difficult it is to scale something up quickly in large amounts.

As soon as you get the green light yeah, it's difficult. Because it's so difficult. We actually started commercial manufacturing in the first week in July, so we had to basically aim at a target that hadn't arrived at its point yet. We didn't know the dose, we didn't know whether the drug could work, we didn't know in which setting it

would work. And today or yesterday we announced a study we'd been conducting with the NIH We're gonna pause because it's in a later stage of the disease where probably these antibodies won't be as effective, whereas in early stage of disease looks highly effective. So we already started that process. It's about four months from beginning to end best case

to start manufacturing and have output. And then, on top of all that, the global um infrastructure to make monoclonal antibodies, which are some of the most complicated and expensive type of medicines to make, is limited. We've harnessed actually five different sites within our network, collaborating with Amgen and working with a large contract manufacturer owned by Samsung actually in

Korea to sequester a significant amount of volume. Even then, we know it won't be enough for all the needs based on the current infection rates, So we need to work on lower doses and then concentrating these important therapies where they can make the biggest impact for us right now. We think that's high risk patients right as they're diagnosed. Rick. There's also Dave, Dave, excuse me, there's also a question

of profitability. And your latest earnings report, which just came out, as said that you expect to spend four hundred million dollars on COVID therapy is exploring what could potentially work. And there's a natural cap to whatever you can charge for these remedies because there is a public health need and benefit right now. How profitable can these therapies actually be based on the human interest here? Yeah, so today we announced journing. It's a good point. It's why I'm

on which showed another solid quarter. We grew revenue and and profit amidst this u pandemic we're in and real I think it shows the resilience of a company like ours as we think about pricing and access our first priorities that patients pay nothing. We know that if there's an out of pocket costs, that that economics will start to differentiate who gets the drug. And we think that

health status should be the only factor considered. So we're working with governments to procure and sell our medicines and

distribute within their markets. In terms of pricing, what we're thinking about carefully is is to ship create a price that immediately creates value not just for us but for the system, meaning it saves money direct costs very quickly, and we've demonstrated we can reduce hospitalization risk in high risk patients between seventy and eight in the U S. A hospitalization stay for COVID is about two dollars per person, so there's ample room to share that value. Assuming the

drug is approved. UM. So we're working on the exact price. It won't be as profitable as other products. Certainly, we expect to have a modest return for shareholders based on our modeling today. UM But I think companies like ours were built for moments like this. Our job is to invest at risk, use our science to solve tough problems. And there's a tough problem at hand right now, and

that's why we're applying ourselves to it. I think I speak for still when I say good luck for the year a hand, and that's facility I can appreciate the time this morning, said thank you Elon, chairman and CEO. You know how this works. I introduced the guests from Morkan Stanley. They talk about a V shaped recovery. How they were right everyone asked was wrong? At least we'll ask some questions about what they might be wrong. In a month, two months, three, that's the next five minutes.

Right here on Bloomberg. Andrew slim And joined us right now. Stanley Investment Management Senior portfolio manager Andrew wild Daniel smiling. I know they shaped recovery stocks up and all that. What's the latest call right now, Andrew, how do you see the evolution of this call at the House of Morgan Stanley that's been pretty spot on for the last

six months. Well, you know, as a portfolio manager, I see the evolution as really the equal wated SMP out perform the cap waited, which is namely that, as you know, up through September, the cap waited was massively outperforming the equal waited. It was massively out for in the small cap next and then something happened, and that is that we're starting to see more of these economically census stocks starting to pick up. So I think the evolution is that it's not so much at the market level as

it pertains the capway to SMP. It's more the unopinions of the rest of the stocks in the index that I've really allied behind. I think they're starting to price some type of reopening. But they did get very overbought on a short term basis, so things like yesterday doesn't surprise me at all that we had a retrenchment a bit, Andrew, the goal here is to have some patients. I want you to define a character and color of patients right now. How do you counsel patients, say out to January or

February of next year. Well, I'm counseling patients through next Tuesday, um, which is resist the urge to overreact to whatever happens in the election that doesn't doesn't fit your you know whatever. You're not you, but your political view is because you know, look, I got grey hair in this business a long time ago, seen so many people. So many people react by doing things in their financial portfolio to express their political views that never turned out to be right. So I'm trying

to get people just to you know, look pasty. But as it pertains to UM out to next year. UM. You know, there's a history of re outbreaks of diseases in the fall after the initial outbreaks in you know, the winner of spring previous uh, and you don't get as much of a pullback in the market because it's a known risk. We knew we were going to get another re emergence, and so I don't think from a financial standpoint it will cause the destruction that we had

the first go run. And I do think the market will begin it's still October, but the market will begin to anticipate that we will get through this at some point that the comps you know, this is a very important point of the comparisons for a lot of companies that were shut down this year is going to be very very easy next year, and the market won't sit around and wait for the reality of that to happen next year. It's going to start to anticipate that as

we get later into this year. So I think we get through the election, and it doesn't really matter who's elected, that the comparisons are going to be easy for a lot of these companies, and I think that's what people

will focus on. So perhaps ten minutes ago Andrew I might have asked you about what happened to the vaccine isn't exactly as effective as people think, or the virus is spreading up more than expected, But that would make me incredibly predictable to Jonathan Farrow, who are already predicted,

I would ask all of those things. So instead I will ask about, theoretically, if someone were in a triple leverage cash fund right now and we're looking at and we're looking for an entry point, uh, you know what they should be buying, how they should be arranging their portfolio and equities now for what you're expecting next year. Well, if you say now, do you mean at this very moment, look,

I can tell you that, um, we sold. I trimmed yesterday in our portfolio some a couple of financial socks, not the big banks, but had gone up a lot, right, I trimmed one of our emerging market stocks that have gone up a lot. I think you know, there's been a lot of risk on since uh you know the bottom of this little short term pullback that happened in September, and a lot of things to me and looked very overboard. Bought on a short term basis, risk looks overbought, so

it doesn't surprise me. We got a pullback, and I think that's kind of a short term play. But I still think positioning wise, if we get further pullback anxiety into the election, when I would say to you, take advantage to get out of that UH, you know, cash position, because I think it doesn't really matter who's elected. I think the market UH is heading higher into next year. But again I'm much more confident in the equated than

the cap weighted indic it's entering on November four. If we get any kind of negative dislocation, we know that you're a buyer. Well, again, we knew that COVID was re emergence was a known risk. We know that dislocation that's code for contested election. That's a known risk. We didn't know in two thousand about a contested election. Bush score was an unknown risk of contest election. We had an eight point six percent Pezza trough down pullback in

that unknown risk. So I don't think this known risk. It doesn't mean we can't have a pullback, but I just don't think it's going to be as much because we're all talking about it. So the question is, what are the unknown risks that we're not talking about. What happens to the economic accelerates too fast and the FED changes policy. What happens if you know, we have another FED share next year. I'm just throwing out things that people aren't talking about. That's what the market tends to act.

React more negatively to Andrew right to catch up, sir, Thank you. Wasn't quite as I predicted, but it was close from morecan Stanley Investment Management, Thank you very much. Brand Nick of Newvie says the lack of fiscal stimulus is weighing heavily on the market outlook. Those programs have all been expired and there's not really a promise for any replacement until perhaps the middle of the first quarter

of next year. And so what we're seeing, I think is at least a pause by markets as they kind of evaluate what US is going to mean for earnings and for the economy as a whole on the fourth quarter. That's the take of Brian Nick used to take a Chris Watling a long view economics right in the following the update on the monthly US household cash flow model and the latest money supply data support the contention that further stimulus isn't necessary. What's needed is a vaccine that

would release the full effects of the stimulus. Tom Keane, that is a take that Chris Watling doesn't just hold alone. That's a take that many people share with him. There's no question about it. It really goes back to really the foundation of long view economic side of Kazanov. Chris Whitling really talking about old normal. I love that idea, Chris Whitling, of pushing against the Pimco religion of new normal. What is the Whitling old normal and what does it

mean forward? Well, I mean the old old normal is is I mean, if you like, it's kind of what goes around comes around. And the thing the thing I like about economic theory is it changes all the time, and people get stuck on one theory. But the reality is the world changes and you need to you need to use a different theory to to sort of address it, which is kind of what we're thinking about in the

old normal, going back to where you were. But I mean, what it means here is that it's amazing how much cash has a masked on balance sheets, and in some ways it's amazing. In some ways it isn't. Of course, you've had an enormous cash transfer from the government sector to the household sector globally. I mean it's been biggest in the States, where of course you've had the extra twelve dollar checks to but it has the old normal. I mean, we're going back to theory of helicopter money.

It's it's it's clearly at play, isn't it. And and as a result, you've got Americans with over two trillion dollars now a sort of extra dash on their balance sheets, which is which is really quite something. Well, your research now it's extraordinary on that. Whether it goes back and you know, you know, M one, M two in the series of old or not, we're up to our eyeballs in cash. What will be the catalyst for someone to

find comfort to put that to work. Well, this is why I think the biggest stimulus really is the vaccine um and the vaccine. Of course, I liken it to throwing the match onto the keresine. And the stimulus is the kerosine. It's already sitting there, it's waiting for that

for that match to hit it. And of course you know, once you get once you get the vaccine, you begin the normalization of spending process, and and all the sort of wealthy baby bimits or we're tired or semi we're tired, and and and the high income workers who may have been sheltering. All these people come out and start spending that cash they've been saving, and Chris, get the economy going and returning to normal. Chris, A lot of people agree with you. I am sitting here listening to you.

We're all waiting for a vaccine. The question is what do you do in the meantime is millions of people lose their jobs and don't have any income, and the tourism ministry is dead, and you end up with this situation where people can't be employed because there are many industries simply shut down because there is not a vaccine yet and there may not be one in distribution form that's effective until the end of next year, even in

mass So what do you do until then? Do you just sort of wait and see how long these cash balances can sustain a households? Well, I mean it depends on your on your view when the vaccine is coming and the judgment on that. It's important if it's I mean, if the American administration's plan is truly enacted, and you and you get a vaccine next month or two, then by April next year, everyone will be vaccinated. So whether or not you believe that's important. If you do, then

maybe you can hold on. If you don't and you think it takes longer than sure, you may want to bridge that gap. But there's there's a short term versus long term playoff here, isn't there. I mean there is, there's some real issues. I know people talk about long term unemployment and issues there, but I think there's also issues of spending in the short term and having some fiscal challenges in the in the medium, in medium to long term, and I think those need to be considered

as well in the mix. So personally, I mean, I'm an optimist, so I think so much money has been thrown at this health problem, there's every chance we're going to get a vaccine, and lots of good noises out there as well from all sorts of health healthcare CEOs and so on, So I you know, I would I would think it's almost worth holding on and and pushing on through for the next few months. But as a political judgment, of course, well, Chris, let's develop this conversation

just a little bit more. I don't think cash levels at the accurate level our reason alone to say we don't need a fiscal stimulus plan if you looked at the lower income groups that don't have those savings, but they do have a higher propensive, higher marginal propensity to spend. Let me get my words out, Chris. If we get the money into the hands of the lower income groups,

then you've got some real stimulus, don't you. Yeah, sure, I mean that if you look at the low income versus the high income, the low income is already basically spending back where it was, if you like, if they've got the money back where wells from earlier this year. Of course, because as you say, they have to spend, you know, they have to pay the bills, and it's money and money out, so absolutely much higher marginal propensity to spend and and and will be helpful in that respect.

But you know, once it's spent, it's gone, and it's on the fiscal it's on the fiscal deficit side and the fiscal debt side. So it depends how you want to go about things. I mean, the more the more you do helicopter money and build up government debton and effectively pay for it with nearly created money. The more you risk medium term inflation. So there are trade offs, and you know, I just think there's not a balanced conversation. You need a balanced conversation about all the different trade

offs that are out there and and a better strategy. Well, let's have that now. Let's do that. Now, tend your yields right now? Are about any basis points? What's the trade off? Well, the tradeoff is, you know, let's let's let's take up Dahlio's thesis of the three phases of monetary policy in a debt supercycle, and we're into phase three,

we're into helicopter money. So the tradeoff is, yes, it looks cheap at the moment, but I think we're going to get the retern of monetary inflation, you know, one of the old normals if you like. And it feels quite a lot like the late sixties early seventies, not that I personally remember it terribly well, um, but you know, physical policy to get unemployment down and no no consequences and concerns about the monetary growth that's out there, so you know, then you get a potential of a repeat

of the seventies. You get higher above average inflation and you get the trade off there in terms of a real growth versus inflation and normal GDP, so you know, and lower productivity growth as well. So so there's a tradeoff. And I don't think Bonnells have pinned here for long. I mean, I think Bonnils is probably the great short out there. And if you get this accine, I'm pretty

convinced that's a great way to make money. Where it's thirty or ten years or even or even playing pricing into a bit of a bit of a great hike on the three or four year Fed funds or borneos.

So you know, I think if we're going to get this economic boom next year, which I think is perfectly plausible, and you'll get the return of monitory inflation, bonnal a one our screaming sell Chris A really bold call right now, especially when you have the large houses looking at bonds and seeing perhaps they could sell off a little bit, yields could rise a bit, but not all that much, Which brings me to a question about what you think

monetary policy will and should be. In other words, will the Fed be willing to expand its balance sheet and buy more treasuries in order to suppress bond yields going forward, in order to prevent that even if inflation increases, you know, leading to further negative real yield. Do you think that that is an acceptable proposal or a good kind of

stimulus going forward to help the economic recovery. I suspect what we have is the FED um It depends on the shape of the growth, and it probably and that in part depends on the shape how the vaccine comes

in the shape of the pandemic, if you like. So, if it's my scenario that we expect that strong economic growth and a bit of a boom feel to it, then I think the FED will be start starting to back off and back away from its stimulus, maybe twelve, eighteen, twenty four months down the road, but certainly doing that rather than engaging in yield curve control because growth will look good and healthy and they won't feel they need to do that now, and they won't want to sort of,

you know, stoke up financial market even more with more liquidity. But to be honest, wrong and it's pandemic continues, then sure, I think there's there's every reason to get yield curve control. Chris. One final question which alludes to, as you mentioned, of the sixties inflation, and I'm gonna call it Walter Heller inflation. So identified there Robert Samuelson with his wonderful book on the sixties and inflation. So far, the inflation Easter Crew

has been wrong, wrong, wrong, wrong. What's different this time? Yeah, good question, I mean, yeah, absolutely, it's it's ten years of wrong forecast is that. I would say the demographics is what's different. I mean monetary inflation. These two things. It means high high high money stock, and it needs money velocity and the best correlation and drive of money

velocity we find out there. It's really the growth in the working age population, in particular that the younger part of that, the twenty to fourty year olds, and you know, these guys are starting to to to grow as of this year. The baby boom has dominated ten years ago, and they were savers then and into retirement. They're now

sort of in retirement or moving in. And the more dominant age group in the States is the millennials, and they're starting to get household formations, starting to have babies and so my my sort off the cup prediction is I think we're gonna have a baby boom next year. It seems to be the most logical outcome of the lockdown UM. And you know that age group is growing.

Money velocity should start to accelerate and that should give you the full monetary inflation equation if you like, along with very high money stock, which is to see what Chris right to catch up. Hey, Chris, always appreciate you're inside. It's great perspective. Come back soon, Chris, seriously, Chris Wading of long View Economics. There's the foreign the international policy uncertainty.

Tina Fordham studies this at evan Hurst Advisory Services. Were thrilled she could be with us with really thoughtful synthesis here of tying this all uh together. What does the State Department look like, Tina with a Biden victory, Well, it might have some people back in it again, Tom m The State Department was famously hollowed out during the Trump administration UM, and the conduct of US foreign policy really was coming, you know, more from from the White House.

We have a lot of demoralized US diplomats around, and so I think what the broad expectation of a Biden presidency, as unexciting as it sounds, would be a return to the kind of conduct of US foreign policy um that we've become used to globally. Regardless of whether there's a Republican or a Democrat in the White House, second terms are always different. And even know, with no disrespect to Mr Trump, it seems all second terms enter jubilant and

become exhausted more rapidly. Would you suggest a changed foreign policy and a second term Trump or just simply more of the same. Uh So, as you say, you know, one of the facts about being a second term US president is your lame duck on the first day, Right, you're you're you know, you're you're you're not going to be re elected from there. Um. I would say not enough time has been spent thinking about what a second

term foreign policy might look like under President Trump. But one thing that I think investors can ca out on is the continuation of tough rhetoric towards China. Um. And in fact that stands even if you have Joe Biden in the White House, so US China trade tensions would remain strong. I think a big I think you will see for foreign powers actually test a second Trump terms for policy right by perhaps being a bit more asserted. We started to see this in Turkey from from President

Erdan for example. Who else might want to test the resolve of of President Trump or an incoming President Biden. Um, it's a it's a good time in many ways to see if if the US is willing to honor its agreements. Tina, It's hard to look out past the next seven days. There is still so much uncertainty about how this election

process will unfold in the weeks months afterwards. Among Democrats, there is a persistent fear of a twenty sixteen read US Hillary and leading in polls, people predicting that she had an incredibly good chance of beating Now now President Trump and Clinton is sort of taking a backseat and not campaigning as robustly in certain key swing states. Now Joe Biden doing something similar. Is this all over again? Um? Well,

Democrats will certainly hope not. For many reasons. Um. First of all, Hillary's UM polling lead actually narrowed in the final two weeks. Um, which is uh, suddenly they we're not seeing yet with with Joe Biden, his lead has been pretty consistent, so he has that on his side. Other factors, of course, that make this time different is far fewer undecided voters, people have been clear much earlier on in the race than we're used to in the US elections. Uh, And we don't have third party candidates

that are really helping, you know, divide things further. So there there are some important differences between now and but for sure it's it remains possible that there could be another divided outcome between the popular vote and the electoral college, which is why I think the margin is really the

key variable to to watch for here. Um. President Trump of course will be you know, would be hoping for another electoral college led victory, and he does have a path for that remaining despite the you know, the negatives and the headwinds against him in this race. But another difference would be that I think, unlike in two thousand, for example, uh Bush score, I don't think Democrats will roll over quite so easily, um as as they did at that time four years later. It's the polling beta

this time around. Well, this is what my poster friends assure me. Um, you know, I'm not a I'm on a poster or an election forecaster myself, pollsters really took a beating UM when in fact, to be fair to them, they were pretty accurate in the in the national polling right because Hillary Clinton did win in on that front. It was the electoral college polling and it was specifically UM, white non college educated men who are under the radar screen this time. If anything, I suspect posters will have

overcompensated for this error. UM. And it's hard to think of a kind of hidden pocket of people, cohort of people that could appear um that that haven't been factored in. And then of course we have the phenomenon of what looks like historically UM, huge turnout. Tina. Great to catch up, appreciate time this morning. Thank you, Tina Fordham that I even hest Advisory Services Head of Global Political Strategy. Thanks

for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple podcast, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio