Surveillance: Eli Lilly CEO Sees Brighter Future

I do this. John and Lisa have a lot of questions about the news yesterday, But David, I think there's massive confusion over all of these fancy words, and particularly around vaccine, around anybody treatment. We conflate bacterial and virus therapies on top of each other. How does a vaccine

differ from the antibody treatment you announced yesterday? Well, thanks for me on Tom, and it's any news last night with the emergency Use authorization in the US for our monoclonal antibody neutralizing antibody, which is a therapy that you're to be given in this approval if you have new, newer onset disease, so a positive test and symptoms, and particularly if you fall into a high risk group, you have underlying conditions or you're older, then you can take

this therapy and in our studies that reduced the probability that you go to the hospital pretty dramatically by sevent um. So that's an important step, another tool now UM to help manage this disease just when we need it most there. In terms of how it works, you're asking what we did actually was UM. When your body is infected with a virus, it amounts a variety of immune responses. One of them is we create antibodies, which have been much

talked about in these antibody testing UM. These antibodies, UH lock up the virus and dispose of it. What we did was took antibodies from surviving patients early in the pandemic. We isolated the very most potent ones in one in this case, and now we make it in a factory synthetically and give it medicine. This is really important. David Ricks. Can you suggest, just suggest that this bacterial like anibody therapy, almost like a bacterial antibiotic, could be a substitute for

a true vaccine. Well, we're studying UM what we call passive immunization in a in a setting where you're trying to prevent spread. In our case, we're looking at spread within nursing home facilities. It's similar to vaccination in a way. So when you get a vaccine, we introduce a killed or modified version of a part of a virus, and your body recognizes that as foreign and mounts its own

antibody response. Here, what we're doing is we're giving you the antibody response of someone else prior to getting sick. It's in a study, it's not approved by the FDA, and we don't have the data yet, but that's a very interesting approach, and if we look at other viruses like ebol, even this was the setting where these antibodies made the biggest difference. Of course in the US, and I think around the world, nursing home patients, elderly nursing

comes are at the highest risk. So this would be an important positive event if it occurred, and we should have that data in the coming weeks. They have to build on what Tom's discussing. I think we're trying to ask the question as to whether we need a multi pronged approach here, not just the advance when we heard from Fiser yesterday, but maybe also complemented by what you're

doing as well. One thing that stuck out for us all yesterday, it's just the storage of the m RNA vaccine that fights are moving forward with, and how difficult it is to store it really really freezing cold temperatures day. Can you speak to that, the developments there on that side, and how difficult it will be actually to distribute something

like that widely and everywhere. Well, for for the messenger our inn A vaccines, they are fragile molecules, so they need to be held at a very very low temperature. That will likely not I don't think that's going to be a major barrier UM. Once this is broadly available in developed markets with advanced medical systems UM, where it becomes a problem is where refrigeration and available capacities UM in developing countries. UM. You know, it's gonna be much

tougher and we'll take longer. That's why we have uh. You know, two of the leading ten UM vaccines are using this technology. Eight aren't and likely won't have those refrigeration constriction restrictions. I suspect some of those will work as well. I bet on that, and we'll likely end

up with multiple shots on goal with vaccines. In the meantime, none of them will work a percent of the time, and back to the original question, will still need medicines like our anibody therapy to help those that will still get sick, hopefully at a much lower rate as we approach something like um herd immunity, but you'll still have endemic disease and we'll need therapies we have. There's many examples where this is true, including common respiratory viruses like RSV,

where we have both vaccination and antibodies. They can go together, but together. I mean this is in the last forty eight hours we have two important developments in the fight against COVID nineteen. I think the future is looking more certain and brighter for sure. To build though on what John is talking about, there are some practical concerns as all of the pharmaceutical companies try to ramp up production, and I'm wondering supply chain issues, especially as a pandemic worsens.

The idea that all of these different pharmaceutical companies are trying to go for the same thing and probably sourcing some of the same uh some of the same substances, as well as using some of the same staffers, how well can you ramp up production of the antibody therapies to meet demand in the next couple of months. Well, I wouldn't worry so much about that competition phase where

we're competing our ideas. I think once it's clear they're winners, you'll see the industry come together to make product at scale. That's already occurred in the antibody space where Rosian, Regenera and who have a different approach from Lily's, have teamed up. We've teamed up with am Gin and then all of the largest contract manufacturing organizations in the world, like Samsung and Fuji to build out that supply base. So I don't think you're we're wasting material by by competing in

that way. Of course, antibodies are complicated to make, one of the most complicated medicines we make, and we usually reserve them for severe disease like cancer and autommunity. Here we're talking about treating thousands millions of people potentially with these antibodies. It will strain that system and we will have scarcity, that's for sure. That's why the FDA last night, when they approved this, really asked doctors to use it in the highest risk patients. That's appropriate, so we use

it where it matters most these a serious issues. We have about thirty seconds left and i'd i'd love for you to do me a favor on just the light and note, can you explain the offside rule to Tom Kane and about twenty seconds? Can you do that for us? You're talking about in football? Yes, of course offside just when when the offensive players in front of the defensive player prior to the ball being struck. Of course, once the ball struck he can run in front. It doesn't matter.

That's different from hockey, where the blue line is what matters. Oh, thank you, that's very good, David Rickster. And of course the sport of Eli lily to our Olympic Committee which they've been committed to for for many years. Last week it was Guernsey in the U S election. This week it's the great rotation East Anglia and Latin bat Chappa is joining us. Now she's sitting there wondering what is it about to happen on this show? Join us from sock Jan she's the head of US right strategy and

a place to say. She's still here. So Batra, let's just start with the bond market move of yesterday. You first take please, a spectacular move higher in in yield, and you know, basically the market has been all over the place supposed to be unwe the reflation trade after the election, and then we had to reflate in a

rush yesterday. Um, so we've we've broken through some key uh you know, technical levels yesterday, and I think that they set off, like you said with with equities set off in the bond market could have legs as well. There's just a lot of cash in the sidelines that needs to be put to work, and if there's an opportunity, I think you're going to see a departure away from bonds into into risky assets. It's about a really important question. I did the math yesterday. I used JP Morgan just

as a giant financial success. And yes it's come off the bottom, but it's nowhere back to the pre Valentine's Day trend. It needs to go up another fourteen percent sort of to get back to trend. Don't call me on that, folks, Those are rough numbers. Did you see a Catharsis yesterday going upper? Job so Bradra that did you see a Catharsis that speaks to a new bull

market or a new leg of a bowl market. Well, I'm not an equity strategist, so I kind of a comment on the on the on the on the equity market, but from the bond side of the equation, I think one of the things that happened after the election was positioning was a lot cleaner. There were a lot of shorts going into the into the elections that got cleaned up. And when we got this sort of surprise news from Fiser, you saw this this sort of you know, massive sell

off in bonds. And I think that the going forward, what the market is going to be focused on is is, like you mentioned earlier about what happens on the vaccine side of the equation. Um, you know, there's lots of logistical issues that need to be dealt with. It's a it's a it's a very large deployment from perhaps several different vaccine makers, and and how that gets ruled out is going to be very key on how the bond

market reacts and how equities react as well. And I think for for a change, you're gonna see more correlation or sort of more negative correlation between equities and bonds where you see you know, riskond days and equities and the sell off in bonds. But I'm losing the neat

narrative here. I gotta be honest. Yesterday I was really confused because we've got tenure yields shooting higher, seismic move you have break even rates, the expectation for longer term inflation not doing that much, so this isn't necessarily a surge in long term growth prospects. And all of a sudden you've got junk bonds yields at record lows, even though we've got an unemployment rate that still is a

nero historic highs in the recent era. What's the narrative? So, you know, I would say, broadly speaking, real yields as well as break evens heading in the right direction. We hit a load of negative one percent in tennie real yields that's gone up to a closer negative ad basis points. And then in break evens as well, you saw about a six or seven basis point rise and break evens.

So it's it's heading in the right direction. That's what you want to see in a reflation trade, higher real yields and wider break evens the question is one of caution. It's really hard for the bond market to price in a lot of exuberance in a very short period of time, given the fact that the FED is very much at play and there's really no certainty on a lot of fronts. I mean, there's not there's not good it's not clear that we're going to get any sort of fiscal stimulus

by the end of the year. Even if we do, it's not going to be of the magie to that's required by the by the economy to prevent new term damage in the jobs market. Sespparentially mentioned the Federal Reserve, and for me, it's the recovery through twenty one that we all hope for, whether feds new reaction function will start to come into its own, where good news will just be good news because the FED is set we

will not step in. How are you thinking about that after the news of the twenty four hours Well, I think the FED is doing exactly what they should be doing, which is the staining path. Right. There's not much they can do on the monetary policy side to stimulate the economy. What really need, what the economy really needs now is on the fiscal side if there is sort of an unruly sell off in bonds, and I can see the FED step in, But there's really no need for for

any sort of monetary stimulus at the current time. Financial conditions, broadly speaking, are extraordinarily easy. You're looking at interestrates and historic blows, you know, equity markets and historic highs the dollars week. So there's really not much the Fed can do to move the needle. Really, the stimulus has to come on the fiscals time side to stop job losses.

It's about a right to catch up. As Owise selk Jan, what we're trying to do John Fern, Liza bramoitts into all of you on radio and TV, is bring you more than the markets. We're looking at economics, finance, investment as horrific virus. As we speak to scientists, sometimes we speak to politicians. Kethy Hokel is a Lieutenant governor of the Empire State. She knows the trajectory of the Erie Canal as it opened up western New York and from Onondaga to Munroe to Erie County, it is a yellow zone.

The Lieutenant governor joins us this morning, Cathy, what does the yellow zone, and what does it mean as you confront a new virus. Well, thank you for having me back on the show, and yes, I'm embedded in that

yellow zone right now. Yellow means caution, and it says that if our numbers don't start trending downward, reversing where we've been for the last two weeks, we'll be in in a situation where we're heading to orange and red, and those means we will have shutdowns, and we'll be trying very hard not to get to a situation where we have to reverse the progress we've made on reopening. But our schools also have to do more testing. We've

limited the number of people at gatherings. So it's not the worst case scenario, but it's a warning to our residence here that I've been saying for days. Now change your behavior or you'll be locked out of your favorite restaurant and you have no chance of going through a football game in person this year, and a lot of other consequences. So it's basically trying to stay beware and change your behavior starting today, Lieutenant Governor of the Conceit

is the big cities have ample medicine, ample hospitalization. I think of strong and that complex and Rochester over in Buffalo, you've seen a positivity rate that is just exploded. Are you concerned with Governor Cuomo about the hospitalization facilities available?

The good news is is that we are prepared for even more capacity, far more capacity in the early months of this pandemic, and the Governor made sure that we had ample supplies of PPE and all the hospitals, each one was required to have at least a three months additional supply. I've been in regular charge with their leadership of the hospitals. Yes, our numbers have gone up, but it's about maybe people in hospitals in Western York. We

can handle that now. But you're absolutely right, it's something that if the numbers, you know, the number of people testing positive, if they turn into serious cases and hospitalizations required, we're going to have to get back to the eliminating the elective surgeries and a lot of the unessential procedures that are now going on, so we can create the

capacity very quickly. Though. We are actually have unfortunately a lot of experience dealing with this and we'll be able to handle it in the meantime, Cathy, yesterday we got incredible news on the vaccine front from Fiser, A lot of people expecting a turn, perhaps an end to the pandemic next year, but there's a lot of daylight between now and then, and some people saying that will reduce the emphasis on a fiscal support plan from Washington, d C.

From your vantage point, how much does this take pressure off of Washington to help with the twelve billion dollar bailout for the m t A, to help with the unemployment as more people get laid off as the virus counts go up, and just help financially going forward. I don't think they're related. I don't think that having a vaccine takes the pressure off at all, because we've already

lost that money. We've already lost the revenues and the feeds generated from people using our transportation systems or from the sales tax revenues that were not collected, and the extraordinary cost that we had to incur just fighting this pandemic and are still paying for now. That's not gone away with the vaccine, And the truth is this vaccine is going to take a while to be wildly disseminated

and have a real impact now. Governor Cuomo this summer started working on this, you know, very early on to have a widespread distribution plan in the state of New York, one that's quite different from what the White House is proposing, where they're saying they're going to get into the hands of doctors and to the pharmacies. Would is great if you live in an area that has a lot of doctors and pharmacies, but large parts of New York City, or what we call healthcare deserts, they don't have a

right A or CVS or Walgreens. Where are they supposed to get it? So we're focused in New York. I'm making sure that communities that have been hardest hit that make sure that they're not left out of the distribution of the vaccine early on as well, because many of those individuals in the black and brown communities, they're the frontline workers, they're the health care workers, they're the mt

mt A workers. So we want to make sure that there's the plan includes everyone and is fairly distributed as quickly as possible. Lieutenant Government. Just to finish on a final question about restrictions, We've seen restrictions from Massachusetts, we've seen it from Utah, and yesterday evening we saw it from the government New Jersey, Mr Murphy, Now Phil Murphy outlined a plan that we're all familiar with here in the UK, which is to close down indoor dining from

ten pm. We're familiar with that. Because it didn't end there. Something else came next, Cathy, do you see merit in that approach? Lieutenant Governor? Do you think that is a good approach to allow indoor dining to shut at tempm?

Does that make sense to you to stop at temp M. We actually have a restaurants have to shut down at midnight in New York City and that is part of our Yellow Zone in fact, and you know upstate New York those counties that you referenced earlier will now be having restaurants shut down at midnight because people tend to the more you drink, the more you're out, you know, more likely to gather at parties afterwards. You just analyze

human behavior. Your defenses go down the more alcohol you've consumed, the left you are to be compliant about wearing the mask. So we think it makes sense. The issue that we have here, though, Lieutenant Governor, is it didn't stop there, and it clearly wasn't sufficient. You're not at all concerned that twelve doesn't make sense, tend doesn't make sense that actually you need to get ahead of what's about to

happen through winter. Well you'res you're asking if it's going to be more a restrictive Well, the numbers will dictate that in the state of New York and New York City's infection rate was one eight percent on Friday, it has creeped up to about two point five percent. So clearly, yes, we are watching those numbers. And as we head into various zones, the one zone that does require a shutdown of restaurants is that is the red zone. What we're now doing is limiting the number of people at tables.

You can't have ten people at the table, you can only at for so everything you're talking about, we are watching what going on in other states. But New York still maintains that we are the lowest large state infection ry. I think a couple of rural states are maybe a little bit lower than us, but we want to maintain that. And you're absolutely right that everything has to be on the table to consider if we get to that situation. At sending Governor, we appreciate your time and howefully will

catch up against and Cathy. How cool that Mr Pharaoh identifies that spread between Russell two thousands small cap is indicated by the big tech is negative. Big tech negative of Russell two thousand is positive. Stampsovo has seen this before. He's a cfi A. Well, actually none of us have seen what we saw yesterday, and it will go and you acclaim stock almanac, Sam Stovo, just your single summary

of how unusual was yesterday? Well, Tom, very unusual. I mean we were up uh more than five percent at one point on the day, and then we closed up one on the S and P five. So when you look to you know, closing percent changes, Um, it's just simply a blip. We had five times this year that we're even substantially stronger. On March we were up nine

point in a single day. Um. And so I would say it would certainly add excitement to one's portfolio, but certainly not adding a lot in terms of asset value. Right now, Sam, yesterday was a catch up tride. We can all agree on that the names, the parts of the market that were left behind all caught up. What people thought it was safe suddenly became a massive risk you reprice Boom twenty four as done or is it?

And Sam, that's the question right now. Was yesterday the catch up trade or the beginning of a durable trend? Now that's really difficult to identify with one day's price action. But Sam, do you have a cool on that? Well? I think that you know when you look to the individual day then you know you're absolutely correct. Um, you had basically seventy of the near one hundred and fifties sub industries in the SMP in positive territory, so it was pretty broadly diversified. The SMP six was up close

to five in the single day. Mid caps are up three percent versus the large caps a little more than one percent. Game. I think that because investors are saying, we've got ten companies around the world that are in phase three trials of a COVID nineteen virus vaccine, that even if Fiser's stumbles a little bit, we still have nine more that we can work with. And so Wall Street is looking beyond the valley, it's looking beyond the spike right now and saying six to twelve months from now,

things will be growing. And the real question is by how much will analysts be elevating their two thousand and twenty one estimates, and we all have to look beyond this valley just to stay upright, frankly, because the pandemic hasn't been that fun. That said, you still have to start wondering about valuations. Yes, we are going to reach some sort of new normal, but record highs basically in a lot of the equity indices, and this is predicated

on the idea that interest rates will stay low. At what point will treasury yields rise high enough to offset that narrative to basically say we have to reset valuations. Yes, it's a better world, but valuations got too high for where rates maybe well, good point. If you look at it on an absolute basis, basically everything looks expensive. SMPI trading at twenty two point four times next twelve month and TM earnings, which is a thirty premium to its

average over the last twenty years. Every sector except financials and healthcare are trading at double digit premiums on a relative basis. However, only consumer discretionary and energy are trading at double digit premiums to the market. So I guess it really depends on whether we're going to be seeing rotation or an actual retreat right now. From a technical perspective, I think we have to see interest rates go above one in order for us to see a technical rotation

from a bearish trend to a neutral trend. And then I think we need to see interest rates rise more dramatically for investors to really get scared and think that inflation is right around the corner. And just to give some perspective, we now have a tenure yield near session highs at nine basis points, so about five basis points away from that one percent mark. There is also a question of whether this rotation means losses for big tech

or just under performance. What's your take on that, sand Well, right now we're going for um losses or under performance, actually near term losses, but more longer term under performance.

When you look at the SMP five growth minus value on a rolling twelve month basis, we hit an all time high in August and then again in September, meaning that going back to the twelve months present change for growth stocks minus uh that that for value was at about thirty five percentage points higher than where we were

during the tech bubble of the late nineties. So, uh, it just seeing that it was a matter of time before we saw some sort of rotation away from growth and toward value, which were in the very early phases of right now. So, Sam, this rise is a really

important question. Let me build on one. LEAKSA just asked how much risk is through the index level for passive investors just sitting and holding the SMP five hundred, given the waitings of these huge tech names Apple six of the SMP, Microsoft five and a half percent, Amazon about four and a half percent. Is there a lot of risk at the index level because of the white things? Um?

I guess. So. I mean, when you think about it, you mentioned technology with Microsoft and Apple, but then you've got Facebook and the two share classes of Google in the communications services, you have Amazon and Visa in the consumer discretionary. So it's not just one sector. It is spread around. Uh. And so it is a large cap index and therefore the behemans do tend to drive the action. But interesting, back in two thousand and eight you would

have said pretty much the same thing. Um, ditto back in two thousand Yet the equal weight five tends to fall more precipitously in the early phases of bear Mark it's or or corrections, so it is interesting, but the they do offer ballast because of their size, because of their market share, etcetera. Well, the equal way at a massive day yesterday, Sam, It's great to catch up to get your thoughts on this market. What a move we've had,

What a week already. Sam Stuggle, the CFI right Chief Investment strategistic Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio