Apple, Bayer, Moderna and Other Catalysts

name is Elliot Stein. I'm a senior litigation analyst covering litigation and the financial sector, and I will be your host for today, February one, twenty twenty four. As always, if you have any questions about any of the matters that we'll be discussing on this episode, please don't hesitate to reach out to us at your convenience with your questions.

All right, So we'll be discussing a handful of sectors today. First, our healthcare policy analyst Dwayne Wright will discuss why Scenting and United Health are the likely beneficiaries of an Affordable Care Act sign up surge, and separately, why retail companies like Best Buy and healthcare providers like a Medicist will benefit from Medicare's Hospital.

its watches has taken effect. Sticking with tech. Matt Settenhelm, our TMT litigation and policy analyst, will discuss February twenty sixth oral arguments in the Supreme Court concerning whether the First Amendment allows states to force Internet platforms like Google

and Meta to carry content against their will. After that, I'll discuss in upcoming hearing on February fifth in a lawsuit by private equity firms and hedge fund hedge funds challenging a recent SEC rule that would increase regulation of private fund advisors. Nathan Dean, our financials policy analyst in Washington, DC, will then give us an update on the Basel three endgame concerning capital requirements for banks, and he'll also talk about in anticipated final rule by the CFPB on credit

card late fees. After that, Justin Taresi, who covers consumer and industrial litigation and policy, will discuss additional trial that the company buyer faces in cancer related roundup litigation in state courts across the US. And last, but not least, our antitrust analyst Jenrie will discuss a lawsuit likely to be filed by the FTC against the Kroger Albertson's MNA deal. As always, all of this research is available on the Bloomberg terminal under big 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 delivering 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 content. Dwayne, let's bring you in to start with some DC policy talk, specifically in the healthcare sector.

You've written that there has been a record number of Affordable Care Act sign ups for twenty twenty four and that's and United Health are among the health insurers most likely to benefit from that. And you also had a really interesting note on hospital at home care and why companies like best Buy and a medicis are likely to benefit from a Medicare waiver for such care. Do you want to come in and tell us more about these issues?

sign ups from twenty twenty three. It offsets some of the roughly fifteen million people that are expected to lose Medicaid coverage during the renewal process that began in April, and it suggests that of the fifteen million, some are being captured into a different business segment, allowing companies to retain premium revenues. CMS estimates that of the twenty one point three million or the five million new enrollees two point four or previously on Medicaid. So why is this happening?

One the timing the Medicaid renwal process and a multi stakeholder push on coverage is free advertising for the Affordable Care Act as a health coverage option, and the number two enhanced subsidies, the I rays and HAND subsidies lowers premiums for individuals below a certain income or if their premiums are a certain percentage of their annual income. So both of these trends have been favorable for the health insurance.

Now what's the outlook, Well, it wouldn't be surprised if enrollment eventually tops twenty two million this year, largely because the Medicaid manual process will continue through the first half of this year, and as more enrollies lose coverage, the ACA could be a coverage option. Number two, the growth trajectory helps cement the ACA into the healthcare fabric, making it more and more difficult to repeal, which presidential candidate

Trump has promised to do if elected. And then for United Health and centeen, they're probably the biggest winners because they have the largest footprints in terms of the number of states they're in, roughly twenty eight or twenty nine states for those companies, followed by Elevants and some others so they're likely to see the biggest gains from this and will continue to see the biggest gains as the

Medicaid process unfolds through this year. Now, on the other topic, the hospital at home trend, it's something they keep an eye on. It's starting out very small, but this could grow over time. And so what am I talking about with hospital at home? It's a pandemic era waiver that allows hospitals to provide in patient hospital care for patients

in Medicare's fee for service program. These hospitals get the same in patient payments amount they would have received if they had received care provided care in a brick and mortar setting, but the waiver allows them to get the payment when the care is provided at home. The waivers expires at the end of the year, and we think

it will get extended. The key here is how healthcare players and some non healthcare players are using this as an opportunity to expand their growth opportunities to capture some of those healthcare dollars. So when you think about a company like By you wouldn't think healthcare, but they've expanded their remote monitoring and telehealth capabilities through acquisition and are partnering with hospital systems to provide the IT infrastructure to

safely do these hospital at home programs. Companies like Medicists have expanded their home health capabilities through acquisition, but they too are being in the process of being acquired by United Health, seemingly as a way for the company to improve margins on their Medicare population by creating a pathway for treatment in a cheaper setting without lowering quality. So

is this a big revenue driver for companies now? No, But with increasing pressure on health plans through lower payment rates, a shift to value based healthcare, growing medicare population, the hospital home trend is something that we're keeping an eye and to see how it evolves over the coming years. So if that I'll turn back to Elliott.

twenty nine. So the hearing that's coming up as a claim construction hearing, it's going to provide the court and

opportunity to construe the claims. And we think this key is really going to be this hearing is going to be key to Maderna because you know, based on the filings, Maderna looks like they are setting up to argue that their COVID vaccine doesn't infringe these patents, and I think the key to their argument is likely going to be that their vaccine contains a different amount of lipids than what's actually claimed in our beautuses claims, particularly in the

twenty twenty nine patents. So the twenty twenty nine patents, most of them claim these lipid nanoparticle formulations that contain a certain amount of lipids, and of interest here is the cationic lipid, which typically their claims say fifty to sixty five percent. Now, looking at some of the filings, it looks like Maderna has some level potentially lower than fifty percent, though it's not clear. We're not able to

deduce from their filings what amount they actually have. So what's going to be key at this hearing is how those claims are construed around fifty to sixty percent and what amount, if any below that fifty percent is our beutises claims going to be set to cover. Now, one of those patents in the twenty twenty nine patents has been drafted where they don't actually recite a specific amount of caonic lipid. But what Maderna is arguing in the

claim construction as well. During prosecution of all these patents, the key feature that you our Bautist relied on for patentability was to say that it was fifty to sixty five percent caic lipid. So they're looking to have the court read that into the claims the patent that doesn't specify the percentage of cabianic lipid. That's the three seven

eight patent that expires in twenty twenty nine. So I think this is going to be sort of the first battle between these two to really get a sense of what our beautuses patents cover and how successful potentially Maderna's arguments could be for non infringement. This is a brand on brand type of patent litigation, So really what we're looking at is whether Maderna is going to be on

the hook for reasonable royalty. So you know, we think the risk to Maderna is about one hundred and seven to fifty six or five sixty eight million in total patent royalties through twenty twenty nine. But again we think this is really going to be key to whether they can limit or potentially reduce that liability. And with that, I'll turn it back to you, Elliott.

Masimo's patents. Now, the last time we talked, that ban had been temporarily paused by the US Court of Appeals for the Federal Circuit, but the court then said that the band could go back into effect during the tendency of Apples appeals appeal of that underlying decision. So the

band did take hold January eighteenth. So right now, and what we're waiting for is any indication that Apple is willing to finally settle this lawsuit now so far it has refused, and its attempt to design around the infringing patents was successful only because what it essentially did was issue a software update that blocked this feature from working, And in fact, because these patents protect hardware specifically, it sort of protects the placing of the sensors on the

back of the watch to measure these blood oxygen levels. But because of that, we don't think it's likely that Apple is going to be able to come up with any easy way to bring a watch to market that includes these features absent a broad and significant redesign. Now the litigation has shifted somewhat to the focus of litigation to a case in Delaware where Apple is actually the plaintiff. It's trying to stop Masimo from bringing its own watch

to the market. Now, in that case, Masimo has challenged apples asserted patents at the patent trial and pel board, and it has asked the Delaware court to pause that proceeding while those challenges play out. Apple a few weeks ago opposes that stay, and our use of the district court case is Apple's best chance to stop masscrow from really coming in here and taking massive scale share in

this market for smart watches that monitor these functionalities. Now, we think the court will deny Apple's request and the case will be stayed while these challenges play out, But the fun fundamental question remains is will Apple settle now most companies would have done so already rather than letting a highly touted, touted feature be removed from a signature signature product. Apple's resistance to a deal is likely at least partially driven by a reluctant to setup precedent of

paying off patent owners. Now. Like most large tech companies, Apple does face dozens of patent infringement lawsuits each year, and if it were to settle all of those cases, it really would have a material impact on Apple's margins. However, we're just gonna have to wait and see if it reaches a threshold in this dispute with Masimo where the damages of that sales ban outweigh the potential risks of setting such a precedent. So I will leave it there. Back to you, Elliott, Thanks Jaremn.

with big implications for these companies in particular. You want to come in and tell us more about it.

harms to that they may be causing for children. This Supreme Court case really gets to how can can regulators go after these companies and how does the First Amendment limit their ability to regulate an issue specifically, Here are two state laws, one from Florida one from Texas that were motivated by concerns that the big tech companies were biased against conservatives. But fundamentally these laws raise a basic

question about control from the companies. Can regulators force the companies to operate as open platforms for the speech of others. The companies say no. They say they have a First Amendment right to decide what appears on their platforms, what to emphasize on their platforms. Just as the New York Times gets to decide what stories to run and which to emphasize or prioritize, just as a museum curator gets

to decide what to display. The government can't dictate how they make those speech decisions, and so that's what's tied up here in terms of impact. I think there are two important things to watch here. One, if the States win big here and social media companies can't control their platforms, they can be treated as common carriers. It risks denting their digital ad business that brings in billions of dollars

a year for Alphabet and Meta. The platforms would be at risk of being overwhelmed by content that the companies now look work very hard to remove. Advertisers could look elsewhere, and that could have a on the business. If the companies win and the First Amendment shields them from this sort of regulation, the question is how big of a victory did they win. How much does the First Amendment shield other types of regulation, such as data privacy regulation,

such as regulation aimed at protecting kids. There's the potential for a very big win for the companies here as well. So how does it likely play out. It's not a sure thing, and I expect the Supreme Court to be divided on this, but I give the companies a seventy percent chance to win this case. I think Justice is Alito, Gorsicch and Thomas are good bets to rule against the companies and to rule for the States, But in my view, it's difficult to see the States getting two more votes

to win this case. Justices Barrett, Kavanaugh and Roberts will be the most important to watch at the February twenty sixth hearing, and so keep an eye on them. I expect the Court to decide this case in the second quarter, probably in May or June. With that, let me toss it back to you Elliott.

The rules also prohibit providing preferential treatment to investors, and the rules impose restrictions on expenses and fees that are related to government investigations. So all told, these rules are estimated to cost private funds about five billion dollars per year to comply with, and they're expected to result in loss of investor capital and higher fees for investors as well.

Oral argument is going to be held February fifth before a three judge panel of the Fifth Circuit Court of Appeals, which generally is, I think most people are now aware, has been a very business friendly court and also a court very skeptical of administrative overreach, and that's one of the reasons we think the challengers that are suing here have a seventy percent chance of striking down the rule, as we think their primary arguments will resonate with these

judges on the Fifth Circuit and then also the Supreme Court if it gets that far. Just to be a little more specific, I think the trade groups have a strong argument that the SEC is exceeding its authority because the agency is relying on a general anti fraud provision of the Investment Advisors Act as well as action of Dodd Frank that doesn't really even mention private funds but instead is focused on retail investors, which really aren't at

issue here. So I think the court will find that the rule violates the Major Questions doctrine because Congress didn't explicitly give the SEC the authority to regulate private funds in this manner, like I said or argument on February fifth, and I expect a decision by this three judge panel

by the end of the second quarter. If the SEC loses, as we expect they will, the agency can then pursue further review by the full Fifth Circuit Court of Appeals or the Supreme Court, but I don't expect the agency to do any better with those appeals either. So for now, stay tuned for updates following the February fifth hearing, and we will move on to Nathan Dean to talk some financials policy. Nason, a lot of talk about the Bosle three endgame recently and whether it will be finalized this

year or not. Plus, I feel like we've been waiting for the cspb's final rule on credit card late fees for quite a while. Now, you want to come in and tell us the latest on both of those issues.

Bank Americas. For the regional banks, you're looking around five to six percent. Now, this rule is universally hated by the industry. In fact, for those of us in the DC area, we actually had commercials during the Ravens Chiefs

game talking about Bosle three endgame. So what the industry is doing is at this moment is they are putting pressure on the FED, the OCC and the FDIC to either scale back drastically their rule, or their hope better hopes is to delay this until after the twenty twenty four election, and then if you get a Republican victor in the White House, then you know this rule could be indefinitely delayed. So what do we think is going

to happen? Well, the comment deadline was January sixteenth, to the FED and the other regulators are going to go quiet for the next few months. They're going to analyze all the comments, there are lots of them, and then they're going to try and give us signals on what they think will happen. Now, as of right now, we are still saying sixty percent chance of finalization this year.

But I want to throw a huge caveat on this because the FED is hanging by a thread because the amount of changes that they are going to make, which I think they will make, and we actually saw a note from one of the bank, one of the big banks this week saying that they think there are going to be substantial changes to the basle three endgame is because if you look at the risk weighting of assets within this rule, specifically geared towards consumer products like mortgages, loans.

We've even seen criticism from moderate Democrats over the environmental aspect of this, for the risk waiting of climate financial instruments that's going to change. There are three pillars to this rule. It's operational risk, capital risk, and market risk, and it's the operational risk and the capital risk that I think are going to be dramatically changed. Now will we don't have a prediction on will it be a nineteen percent increase in capital. It'll probably be much smaller

than that. But that's the thing that we're going with at this moment. But like I said, there is a decent chance that this could also be delayed because there's another there's a substantial number of changes that they want

to make and only so much time. The other thing that they've got the regulators have going against them is there is a threat of lawsuit and theyre is very feasible that if they do finalize this rule that on next year edition our next year January edition of this podcast, Elliott will be talking about the lawsuit that has been made against the Basle three endgame. So just keep that

in mind. The industry is prepped for a lawsuit. We're not making a determination on that yet, but just that's one way that the banks have said, you better make sure you get this right, because if you don't, we're gonna sue you. Now, moving on to the credit card late feed. The reason why we're telling this about this now is that I suspect the Consumer Financial Protection Bureau is going to release their proposal on credit card late

fees before the March seventh State of the Union. Now, this was supposed to come out off the tailine of twenty twenty three. It didn't. I suspect that it was delayed because of political decisions. This rule goes into President Biden's agenda on his war on quote unquote junk fees. This is primarily over the CFPB and the FTC, but for the CFPP, this is one of the key rule makings. Now what does this do. Well, there's about two twelve billion dollars in late fees out there right now per

per year. Because late fees are capped at thirty dollars. This will take the thirty dollars fee and drop it down to eight dollars and as a result, up to nine billion once you had all the other technicalities around it. Nine are the twelve billion dollars in late fees could be at risk. Now who does this impact, Well, it's the private card. Private label cards like Synchrony and Bread Financial.

The are the ones that are mostlyt risk. So if, for example, if you have a Nordstrom card, or a Seers card, And I just realized I dated myself, because I'm not sure if a Steers card actually exists anymore. But if you have one of those private label cards, it's the company behind it that usually gets more of

these late fees. And in fact, we just recently saw Bread Financial say in their fourth quarter earnings that if this rule is in place, or had this rule been in place at the table end of twenty twenty three, their revenue year over year would be twenty five percent lower than what it is right now. So this is a real risk. Bread and Synchrony both companies have said

that they're taking steps to deal with this. But I do highly anticipate that CPB is going to finalize this in the next few weeks and that President Biden is going to mention it in the State of the Union address. Thank you, ellertt.

company's won about ten of the sixteen trials it's faced in the last year. So Buyer saying that you know they will be appealing this verdict and other roundup verdicts. But because of the ratio of this particular verdict damages which was two hundred twenty five thousand dollars in compensatory damages to two point billion dollars in punitives. You weren't actually within this constitutional ratio where you know, the the

damages itself are, aren't. You know, in a place of unconstitutional numbers, there's a cap of one to nine usually that would trigger an unconstitutional ratio, and that's just not the case here. So well, an automatic reduction in the jury verdict isn't necessarily on the table. Going to attack the compensatory damages themselves as excessive in the coming weeks, and it's going to be a bit of a harder challenge, but we think it's highly likely that this amount will

be reduced by some factor. The issue is it just might not be to the degree the company is hoping to reduce it. For so in these suits, plaintiffs are claiming that round up. You know, a product that Buyer inherited from its acquisition of Monsanto back in twenty sixteen has caused their varying cancers. The most notably of those is non Hodgkins from FOMA, and in twenty twenty one, the company took a charge related to this little litigation

for a total of sixteen billion dollars. That same year, Buyers settled about one hundred and twenty five thousand of those cases for nine point six billion dollars, but that still leaves a remainder of about six point four billion in the company's reserves. So what's changed from twenty twenty one is the company's currently stated litigation strategy of really digging in a deals and fighting the cases through trial

to a full jury verdict. And the company's reaffirmed the strategy and stance several times, and even in the recent weeks when these verdicts have been coming out, the company still strongly denies the life estate the alleged carcynogen in Roundup actually does cause the cancers at issue, and complicating matters here the number of remaining roundup cases. It's about fifty thousand cases now nationwide, and it's continuing to grow

with no cap really insight. A lot of these cancers are latent, and you folks who might bring us to it might not yet be aware that they're ill, or

tie their illness purportedly two roundups. But these cases, the fifty thousand of them, most of them are now in file and state courts and scattered throughout the entire country and complicating things there, we're talking about different statutory and common law rules in each one of these states that's really affecting the outcomes of these cases from place to place.

Really wide different results we're seeing in different jurisdictions, So we're really on watch here for a parade of what we think will be mixed verdicts that will continue over February and the coming year. There's at least ten trials on the calendar right now for twenty twenty four, four state trials that are slated for next month alone in February, and from what we're seeing, their reportedly taking place in Delaware, Arkansas, California,

and another one in Philadelphia. Most of these jurisdictions have been notoriously plaintive friendly, not great news for buyer, So you know, you might be asking why the continued push here to fight these cases and not just try to

settle what's left in the reserves that are remaining. And that brings us to our second catalyst for buyer that's moving concurrently with these jury trials, and that is that we're waiting on a ruling from Atlanta's Eleventh Circuit, where a panel of that court is reevaluating whether state law claims on round up are preempted by federal law an unbanked decision from that circuit that they could in fact be preempted depending on whether an EPA determination about life

estate carried the force of law. So if the Appeals Court finds these claims as preempted, and we give Yer as slight edge here with the odds we think they will, this creates a circuit split with the Nine Circuit in California and raises the chances significantly that the Supreme Court will hear the preemption question. Buyers stated publicly many times and even now on its website that it hopes for a Supreme Court resolution of these cases in their favor.

A favorable ruling from the Supreme Court here could effectively end state cases related to round up nationwide. So we believe this ruling from the Eleventh Circuit is imminent, could come any time, but the court has been a bit slow, so we think, you know, it could take through the first half of this year before we see something there. And that's buyer and around. That's Buyo litigation in a nutshell.

Kroger Albertson's deal. Why don't you come in and tell us why you think that and what investors should be looking out for.

And if the FDC wants to try to stop them from closing, they have to bring a suit before the end of that timing agreement because after that they don't have a legal ability to stop them from closing. So these companies are two grocery store chains as I think everyone knows, and they each own numerous brands, quite a few that I didn't even realize they owned until I started looking at this, like Albertson's owning Balducci's, which came as a surprise to me. So they're bigger nationally than

you might think at first first glance. And this came from years of consolidation in the grocery sect, which kind of poses a problem for getting this deal cleared. So for months now, the companies have been trying to convince the FTC to allow them to close the deal with the settlement, and the settlement would involve the divestiture of up to about six hundred and fifty Kroker and Alberson's

grocery stores. Now, the way this works, broadly speaking, is that the FTC would assess this deal by looking at hundreds of separate little deals, little geographic markets where both

companies have stores. So I call it a map deal because they go on a map and they draw circles around the stores on a map that range from one mile and radius to about ten miles depending on the region, and then they ask what the competitive dynamic is within each of those circles and whether or not by virtue of the consolidation, will buyers of groceries or employees of those grocery stores have fewer options, such that they may face higher prices, a lack of innovation and choice, lower wages,

or lack of employment. So Kroger's basically offering to resolve concerns, and about six hundred and fifty of those circles more or less. Sometimes in one circle you have to sell two stores. So if they sold to an independent grocer, then competition would be preserved, right because you'd have a new party in there now. Five or six years ago, this would have been kind of a no brainer to

win clearance from the FTC. But this FTC is far more aggressive than previous agencies with respect to trying to prevent consolidation, and they're far less willing to accept this kind of settlement offer. And they're generally unhappy right now with a level of concentration in groceries and skeptical of these divestitures being successful. So that's why I think they're

going to sue instead of accepting this settlement. So that means it's up to a judge to decide whether the settlement offer is good enough, because I really think that's where it's going to come down to in court, and I think it's really close. And the reason I think it's close is because while six hundred and fifty stores I believe is enough, the buyer Croker chose kind of has some issues. It's kind of borderline. It's a company called CNS, which is mostly a wholesaler and not a retailer.

It does own the store brand Pigley Wiggly some people might have heard of, and it's been said that they have one hundred and sixty stores, but I believe they actually franchise quite a few of those stores, so they're not actually operating them. So adding six hundred and fifty is a huge increase, and they'd also be buying stores and states where they don't currently have distribution and havenn operated in the past. Now, under the guidelines for horizontal mergers,

settlement offers have to do two things. They have to put together a critical massive assets that will permit the purchaser to compete effectively in the markets identified as problematic. They've probably done that, But the second thing is they have to have a buyer that will genuinely recreate the competitive force loss as a result of the merger. They have to be committed, dedicated, and experienced to be effective. That's how the agency you'll look at it, and that's

what they'll have to prove to a judge. So I think this is going to come down to whether CNS in court can prove to the judge that they are that buyer, that they can take these stores. They have the resources, they have the plan and compete as effectively as Kroger or Alberton's are competing today. Now, I kind of at least very superficially without having the evidence I need, and lean toward them being able to pull it off, mostly because I think these companies are pretty sophisticated from

an antitrust perspective and probably did their due diligence. But after trial I might have a different view once I've had access to the evidence as to cns's suitability. I will attend the trial and keep updating materials on the deal as things develop, So for anyone specifically interested in this deal, please keep watching for my updates.

to us with any questions that you may have. Also encourage you to listen to other episodes of Votes and Verdicts on whatever podcast platform you'd like to get your favorite podcasts on. So with that, thank you for listening and have a great day.