3M, Drug Pricing, Google and Other Catalysts

name is Elliot Stein. I'm a senior litigation analyst covering litigation in the financial sector, and I'll be your host for today, August twenty ninth, twenty twenty three. If you have any questions about any of the matters that we're discussing on this episode, please don't hesitate to reach out to us at your convenience with questions. So we'll be discussing a hand full of sectors today. First, Jenrie, our senior anti trust analyst, will pleave you a pair of

upcoming trials. First, you'll look at the Justice Department's trial against Google over its search business that starts September twelfth, happens to be my birthday, and so also look at a trial schedule to start the next day in the FTC's challenge to amjen Horizon m and A, though that

case could settle before the trial even starts. Sticking with healthcare, Dwyane Wright, our senior healthcare policy analyst, will give us his thoughts on the government releasing a list of ten Medicare Part D drugs that will be subject to government price cuts under the Inflation Reduction Act. We'll then turn back to tech and we'll bring in Matt Shettenhelm, who covers TMT policy and litigation, and he'll be discussing an appeals court decision that he expects soon concerning whether New

York can set its own broad Bay and rates. Holly Frome, who covers litigation and policy in the industrial sector, anticipates preliminary approval of three m's twelve point five billion dollars settlement in Pfast litigation, and she also expects an appeals court decision in three M Earplug litigation, though a pending

settlement there could moot the appeals court ruling. We'll then turn to financials and we'll bring in Nathan Dean, our senior financials policy analyst, to discuss an SEC rule that was finalized last week that will require more disclosure from

private funds. Nathan will also discuss President Biden's recent executive order that aims to curb investments in certain Chinese industries, and then sticking with financials some more, I'll close it out with some discussion of an upcoming oral argument in one of the remaining cases challenging the profit sweep of Fanny Freddie profits to the US Treasury. All of this research is available on the Bloomberg terminal at BI go And just a quick word about Bloomberg Intelligence for those

who don't know. We are the investment research platform on the Bloomberg terminal, providing in depth research on industries, companies, and markets and deliverying key data from BI analysts in their given industries. All right, So with all that out of the way, let's get started with the actual content. Jen,

Let's bring you in first to talk antitrust. I know you have a super busy fall with a lot of antitrust trials on deck, kicking off with this DOJ lawsuit against Google over its search business, and then the FTC has a trial against Angen and Horizon, though it looks like that case is settling. Do you want to come in and tell us about these cases.

laws for illegally monopolizing Internet search. Now, I always say illegally monopolized, because it's not illegal to have a monopoly position. But if a company in a monopoly position engages in conduct that excludes rivals in a way that harms competition and doesn't really have a legitimate pro competitive business justification to support it, and this is done in an effort to obtain or maintain the monopoly, well then they violated the law. And that's what the DOJ, States and states

have alleged that Google does with respect to search. So how exactly does it do this? The allegation is that Google's entered multiple agreements in which it pays billions to be the default search engine on mobile and desktop devices.

These are agreements with companies like Apple and OEMs and telecoms like Verizon, and the DOJ claims for years this has hampered the ability of any other search rival, like Being, for instance, to gain scale because to be a really good search engine, and the product needs data, and it gains data and learning the more searches that are done

on it. So this has hampered innovation in increased advertising prices. Now, I think this is a really tricky case actually, because what the law generally holds is that a company can enter exclusive agreements with up to about forty percent of the available outlets before they've crossed the antitrust line. Because once you get tied up more than about forty percent, you really start to really foreclose the market from your

rivals and they can't compete. But the issue here is that competitors aren't really foreclosed by Google's agreements because any user of any device can go in and change the default search. I'm sure some of us have done that. I know I do that, and Google hasn't done anything to prevent that. So the question here is going to be how sticky is that default position, and is this real foreclosure, and if it is, does it actually cause harm to a market? Since Google's actually quite popular in

people like the product. So I think this is a really close trial because it's going to depend on what the evidence shows with respect to those two issues, and that remains to be seen. We've got one side that say they have evidence that default is sticky and meaningful, and we have the other side that says they have loads of evidence of rampant consumer switching. So we're gonna

have to see what comes out at the trial. There's one fairly certain prediction I can make, though, and that is that if Google loses on liability, it's not going to be broken up. That's one of the remedies that DJ's requesting here. It is overkill and anti trust injunction has to be as nearly tailored as it can to

fix and target the problem. So I think instead Google would be told something like it can't pay for default positions, or at least if it does, it has to let users know with some sort of communication that they can switch and how to do it, or something like that. I'm not really sure what it would look like, but at that point, the impact on Google will really depend on consumer behavior. And then you've got sort of chat GPT coming into the picture too that could also change

a lot of things. Anyway, this trial is going to go through early November. I think it'll get a ruling in the first quarter, and I think if Google loses, it will appeal. And the other anti trust matter that's also supposed to go to trial in September, that's on the thirteenth. It may not because the settlement is in the works. I do think it's likely it's going to settle. This is a very different kind of case. It's the

Federal Trade Commission's challenge to Amgen's acquisition of Horizon. These are two biopharma firms, and it's a really unusual lawsuit because usually mergers are challenged when they combine two companies that compete and the markets would become too concentrated, or the deal vertically integrates the buyer in a manner that would allow it to foreclose competitors. No merger has really been challenged for any other reason in around fifty years,

but we have neither situation in this case. What the FTC says is that Amgen could harm the markets for two Horizon drugs that have monopoly position positions, one that treats thyroid die disease and one that treats chronic or factory gout because it would offer payers PBMs and insurance deep rebates for drug bundles that include Horizon drugs, and that will block potential entry of competitors to those drugs. Now,

I think these allegations are really highly speculative. They assume new drugs are in development that'll get FDA approved, they'll be marketed, they assume they'll be substitutes for the Horizon drugs. The evidence doesn't really support that. It also assumes Amgen will bundle these two drugs, and it assumes if it does, it'll harm competition. So and also, by the way, there's no precedent that supports this theory except a few cases

from the nineteen sixties that have since been rejected. And the last most important thing is that Amgen has promised to refrain from ever bundling the two drugs and it's willing to sign an agreement. So I give the FDC only about a five percent chance of winning if they actually go to trial here. And I think they understand that as well, because last Friday news broke that they

are discussing a settlement. I suspect it'll be something in which Amgen agrees not to bundle the drugs, maybe not to bundle even other drugs that it already has, and at that point the deal will probably be able to close sometime in mid to late September, and I think that's probably the route that that will go. So with that, back to you, Elliott.

On the prescription drug side ones the inflation rebate, capping price increases, the others a part de redesign and this piece which will set prices for those drugs that are high expenditure drugs, either those drugs with a list price but are used by a lot of people, or those drugs that have high price but maybe used by fewer people.

And so the law requires CMS to look at many care spending or expenditures from June one, twenty twenty two to May thirty first of this year and come up with that list of products that are high expenditure but also don't have generic competitors, but are also so many years from FDA approval, And so CMS had until Friday, September first. They decided to go early to get as much press out of this before the Labor Day weekend. And the list itself is not a surprise, at least

to us. Many of us had anticipated that Bristol Myers eloquists for blood clots, Chardians for diabetes, Genuvia also for diabetes would be on the list, largely because they have been consistently high expenditure drugs over the past couple of years. There was a bit of a surprise with Stillara from Johnson and Johnson. This is a Cronz disease crisis drug that we anticipate will have by a similar competition, but

nevertheless is on the lists. So this is the first step identifying that list of drugs that will be subject to negotiations that will start October second, and this is assuming these companies agree to participate in the process. Now, if they do, this will then start a what will essentially be a eleventh month eleven month process where CMS will hold open forums or the public to participate to provide some feedback and input in terms of what the

fair price should be for these drugs. CMS will have a meeting with the manufacturers of these drugs for each drug as well, and then we'll see an initial offer based on those meetings as well as other information supplied by the manufacturers and other stakeholders. We'll see that first offer from CMS February first. Manufacturers will then have an opportunity to accept the offer or counteroffer, and to the extent that there's a counter offer, we can see another

two meetings between CMS and the manufacturers. This all culminates in the August first end of the negotiation process, and then September first of twenty twenty four, we'll see CMS really the quote unquote maximum fair price for these drugs, and this is again based off of conversations with manufacturers as well as other data including other types of drugs on the market, including the R and D that went into it, how much of that has been recouped, and

then also the cost of manufacturing the drug. Then after that March of twenty twenty five, we'll see CMS provide their justification for the prices, and then January one, twenty twenty six, we will see these prices become effective for these drugs. So this is the first step in the process,

and there's quite a few more steps to go. There's of course litigation happening while this process is unfolding, but by and large, there weren't any or should say, many surprises on this list, but it does set up a long eleven month process for CMS and rate setting. So with that, I will stop and turn it back to Elliott.

mostly fizzled. At the federal level, the Trump FCC tore down its broadband rules, the Biden FCC hasn't been able to build them back up, And at the state level, things have mostly been quiet, in part because of this case which is pending at the Second Circuit about whether states like New York can step in and set the prices for broadband services now you know, and so both

of those issues may be returning soon. But I'm going to focus on the state level issue because I think we could see a decision on New York's policy this month. So why does it matter? So if New York wins, it really does set an important precedent for other states that if they think of broadband providers overcharging or engaging in other practices they don't like, they can step in with their own state law mandates that could cost you know,

the companies billions of dollars. Theoretically, this case is about New York setting the price of certain broadband products. And the case was argued in January, and so that means where we're some eight months later, now we're due for a decision any time. Who's favored in it. I view this as an extremely close case because it turns on a very murky legal doctrine, the idea of what's known

as conflict or obstacle preemption. Preemption cases are pretty easy when the federal law is express, when it says, hey, states, you can't regulate here, that's easy for courts to deal with. This isn't one of those easy cases. It's a case of implied preemption where the federal law doesn't say states can act, but maybe it's implied because the federal law conflicts or is an obstacle to what's going on here. So in some judges are skeptical that such a thing

as implied pre option exists at all. So that makes it a very close call. A Republican appointed lower court judge ruled for the companies here and block this New York law. This appeals being heard by two of three Democrat appointed judges Biden nominated judges, and for that reason,

and based on the questions in January. I give a slight edge to the state to prevail here, but it's very important to watch this this play out because of the president it will set so we'll expect a decision you know, very likely in September, if not in the fourth quarter. With that, back to you, Elliott.

for a roughly ten year payout. A bid for preliminary approval was filed in July, but a number of states filed emotion opposing approval or a letter opposing approval on several different grounds, which included that they felt the releases and identification obligations of water authorities were too broad. Yesterday, States filed a statement that they no longer formally opposed

the deal after modifications were made. We saw something similar happen with another set of companies, Camors, DuPont and Qurteva, which were also named in lawsuits over p fast contamination. They announced a deal to resolved water authority cases for one point two billion dollars. The deal was ultimately revised after States had certain objections, and their revised deal after it was revised, was approved by the court on a relatively quick timetable. We think the same thing can happen here.

We think three m's deal could obtain preliminary approval, possibly as early as three Q. And what then has to happen is notices have to be provided to potential class members. Class members who don't want to participate have to opt out, and that's when we can get an idea of how many entities decide to participate. The judge will schedule of final approval hearing objections will probably be made. We think a number of amenities will opt out, but ultimately the

deal will obtain final approval and so. In other news, THREEM says it reached a six billion dollars deal to end more than two hundred and sixty thousand lawsuits over defective earplugs. We had said cases could settle for somewhere between four point five to nine point five billion, with a discrepancy based on the number of cases which would

actually be pursued. Three AM had said over eighty five percent of claimants didn't have actual hearing loss number of legitimate claims was in dispute, but that settlement amount is within the range that we expected, so we think the deal will likely be signed on to you by the vast majority of plainifs. We also think THREEM will likely lose an appeal of the first bell Wether verdict that's pending before the Eleventh Circuit Court of Appeals, and that

also is likely an impetus for settlement. Three AM may request a delay of that ruling pending finalization, but if you can't get a delay, we think they'll lose that appeal, and that is also coming probably coming in three Q And with that, I'll turn it back to you Elliott.

Like that. It also requires that if you are an investor in a private fund and you get a special deal for an early withdrawal or something to that effect, the fund itself then needs to give that special deal to everybody in the fund. The proposal is also designed to take out conflicts of interest. Now, normally a disclosure proposal or a disclosure rule isn't all that controversial, but this one is a little bit different. The reason being is is that a lot of the hedge funds, especially

the big ones, already do this type of disclosure. Now they don't disclosure to the same extent the SEC wants it to. But the funds counter and say, look, we're already doing this, why should we spend more money. Because for the big firms like Carlisle and KKR and so forth, this probably isn't all that big of a cost expenditure. But for a lot of those smaller funds that are out there, this isn't something that they can take lightly. I mean, there's going to be a lot of compliance

and legal and risk costs associated with that. The second thing is just disclosure. You're giving up more information and a lot of private funds are hence private, and you know, there's a lot of folks out there that like to try and re engineer or reverse what a hedge fund is doing and so forth like that, and the more information that is out there, the more information that other people get. So we do anticipate a lawsuit coming, at least given based off of comments from the industry, that

lawsuit could come fairly quickly. Elliot can always tell you offline how the SEC is challenged these days in terms of lawsuits, so don't don't be surprised if that one comes out now when it comes to President Biden's executive order on China, earlier in August, he signed an executive order that would prohibit and or limit used investments in certain Chinese sectors. These sectors are quantum computing, artificial intelligence, semiconductors,

and microelectronics. Now the prohibitions are for semiconductors, microelectronics, and quantum computing. The limitations are primarily for the artificial intelligence, at least that's my view based off of how the order was put out. There's two things to note though, as you're trying to dissect what this order means. One is that this order doesn't take effect day one. This order directs the Department of Treasury to issue a proposal, which they did on day one, that would then go

and implement this. But proposals change, and so that proposal'll probably be finalized sometime in their first half of twenty twenty four, and then we'll go effective after that. But you know, presidents can always change their mind, especially when they're dealing with a trade partner. Is as important as China. The second other piece to note is that the US exposure to China is somewhat limited. From the hedge fund analysis, or at least the alternative asset manager analysis that we've

been doing. Most of the big ones, at least the publicly traded ones have less than five percent exposure to Chinese assets and they've been very cautious on China over the last few years. This does nothing to impact supply chain. This is solely US investments in China, so overall we anticipate a very limited impact, but as with all things proposals, things could change within the next nine months. So Elliott, back to you.

twenty twenty two ruling that dismissed the case. Shareholders are essentially asking the court to eliminate the government's roughly three hundred billion dollars liquidation preference in Fanni May and Freddie Mack, And the crux of the shareholders' argument is that the government would have ended its ownership stake in the companies during the Trump administration if President Trump had been allowed to remove the FHFA director prior to the Supreme Court

ruling on that issue in twenty twenty one. We continue to give the government the edge in this case. We think they're eighty percent likely to win, either by winning this particular appeal or later on summary judgment if the appeals court winds up reversing the trial court's dismissal. At the end of the day, we think shareholders argument about what the Trump administration would have done in an alternative universe where there was no removal restriction, we think that's

just too speculative to prevail. And we also think that a letter that President Trump wrote in November twenty twenty one saying that he would have fired mel Watt, the FHFA director, and he would have ended the sweep if he could have. We think that that letter, you know, it's really just designed for litigation, and we think that sort of undermines its intended effect. So we'll be watching that or argument on September eighth. We'll have an update

after that. You know, with any tea leave reading that we can lean from the argument. But for now, I think we will wrap up this episode of Votes and Verdicts. As always, thank you for listening, and as a reminder, you can find all of our research on the Bloomberg terminal at b I Go, and we encourage you to reach out to us with any questions that you may have. We also encourage you to listen to other episodes of Votes and Verdicts on whatever platform you'd like to get

your favorite podcasts. So thank you for listening and have a great day.