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Carnival Leads Cruise Stocks Lower on Weak 3Q Outlook · Bloomberg Intelligence

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Speaker 2: Carnival Cruise Lines reported some numbers a little bit disappointing.
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Speaker 2: Stock trading down about five percent here today. I think
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Speaker 2: Michael Barr, Bloomberg's Michael Barr, was on a Carnival Cruise
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Speaker 2: Line trip last week and he goes crazy there. We
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Speaker 2: know Charlie Pellett, big cruise guy himself. So there's a
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Speaker 2: lot of cruises around here in Bloomberg. Brian egger Juns
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Speaker 2: is here, senior gaming and launching analysts for Bloomberg Intelligence,
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Speaker 2: talked us about Carnival Cruise Lines. What did you learn
0:50
Speaker 2: on the Ernie report?
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Speaker 3: So, I mean they're still looking for some yield growth,
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Speaker 3: positive yield growth this year. I think the change perhaps
0:57
Speaker 3: was the war in Iran really had an effect affect
1:01
Speaker 3: gas prices, affected air travel and the perception of the
1:04
Speaker 3: ease of air travel, and some terineraries in the Eastern
1:08
Speaker 3: med Mediterranean I think the big change for their perspective
1:11
Speaker 3: is how long it lasted. You know, it comes down
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Speaker 3: to I think when they last gave guidance the marks,
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Speaker 3: they were not expecting we'd still be talking about this
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Speaker 3: into May and June. So things have gotten better in June,
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Speaker 3: but I think, like you know, May was a bit
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Speaker 3: of a setback in terms of the duration of a conflict.
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Speaker 4: Yeah, yep.
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Speaker 2: So what are they finding about. I guess just you know,
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Speaker 2: the typical bookings I think in the Caribbean and all
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Speaker 2: that kind of stuff. How did they hold How are
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Speaker 2: they holding up because I kind of think when I
1:37
Speaker 2: think cruising, that's a big part of it.
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Speaker 3: Yeah, I mean overall quite well. I mean, with the
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Speaker 3: exception of the disruptions I talked about, we're still seeing
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Speaker 3: positive ield growth, which in an uncertain economy is I
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Speaker 3: think a good thing. They are. I believe they said
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Speaker 3: ninety three percent booked for this year, and they've got
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Speaker 3: some positive early indications for next year. So the industry
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Speaker 3: is still to be quite resilient, notwithstanding the fact that
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Speaker 3: you've got the disruption from this war itself, which was.
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Speaker 2: A factor on the fuel side. I know, the airlines
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Speaker 2: buying large do not hedge. Do the cruise companies.
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Speaker 3: Hedge something that do. Carnival strokely is not hedged. Some
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Speaker 3: of them do have hedges, they have collars in places
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Speaker 3: in the case of Carnival, you know. And when we
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Speaker 3: last heard their guidance, they were providing guidance based on
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Speaker 3: certain expectations about Brent fuel. At the time they last
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Speaker 3: spoke a couple of months ago, fuel prices were above that.
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Speaker 3: Now it's below that. So it's very much tied to
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Speaker 3: the trajectory of this conflict.
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Speaker 2: What's fuel as a part of their cost structure of
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Speaker 2: a typical cruise.
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Speaker 3: Remember what the exact percentage, it's pretty big. It's a
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Speaker 3: pretty philly oarge.
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Speaker 2: So this is something. I mean, they've been dealing with
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Speaker 2: a headwind for the last several months. May become a
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Speaker 2: little bit of a tailwin it on the downside, could be.
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Speaker 3: I mean, I think they went into with some assumptions
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Speaker 3: about forward contracts where Brent prices that we're eighty ninety dollars,
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Speaker 3: and now as Crewe oil eases, it could be it
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Speaker 3: could work the other way. So, certainly the relaxation or
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Speaker 3: the easing of rent fuel, even though they use bunk
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Speaker 3: or fuel a certain grade of it is a positive
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Speaker 3: for them.
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Speaker 2: One I noticed sitting on the beach of Aruba is
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Speaker 2: the ship's engine, even when they're docked, it's running because
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Speaker 2: I see the smoke coming out of the smokestack twenty
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Speaker 2: four to seven, I guess just to run the thing.
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Speaker 2: So they've burned in fuel twenty four to seven here,
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Speaker 2: So that's a big issue. Talk to us about capacity
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Speaker 2: in the industry, are we adding capacity taking it out?
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Speaker 3: So the industry overall, we're looking at something like four
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Speaker 3: ish percent mid single digit supply growth. Carnival is an
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Speaker 3: exception and as much as they're growing capacity in twenty
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Speaker 3: twenty six by only one percent, so they've taken a
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Speaker 3: much more measured approach, which I think in this environment
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Speaker 3: seems quite prudent. They will be adding maybe one or
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Speaker 3: two ships a year balance between the Caribbean and the
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Speaker 3: rest of the world, but zero point nine percent supply
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Speaker 3: growth for them for this year is obviously quite measured.
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Speaker 2: We're seeing in lots of parts of the economy the
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Speaker 2: higher end doing well, the lower end not so much.
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Speaker 2: And I know that the cruise lines they have different
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Speaker 2: brands that just like the hotels have different brands that
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Speaker 2: catered to different I guess rivals. Are you guys seeing
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Speaker 2: that that dynamic in the CR I.
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Speaker 3: Don't know we're seeing that much of a parsing between
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Speaker 3: the upper and we'll warn with respect to cruising specifically,
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Speaker 3: you're absolute right. For hotels for a while we refer
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Speaker 3: to the K shaped economy where the and now it's
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Speaker 3: more like the C shaped economy where the you know,
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Speaker 3: the as Hilton Ceo ear marked that with the lower
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Speaker 3: end now coming back. I think for cruises that strength
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Speaker 3: has been fairly broad based. What's really driving it? If
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Speaker 3: you're in the Caribbean, it's these island destinations that help
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Speaker 3: drive pricing.
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Speaker 2: Interesting. Yeah, I'm going on my first cruise in October,
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Speaker 2: a biking bikingship. It's not to forty percent this year,
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Speaker 2: it's doubled over the last twelve months. What's going on there?
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Speaker 2: That is they're having my deposit impact that definitely helps.
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Speaker 3: Yes, right, I think that the niche they're in, which
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Speaker 3: is that luxury segment, and it is a niche market.
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Speaker 3: The river cruise market and the somewhat smaller ocean cruise
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Speaker 3: presence has done quite well, so that may be example
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Speaker 3: of what you're talking about where the high end is
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Speaker 3: doing quite well, and that's a high end consumer clearly
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Speaker 3: more luxury focus. So while we don't see those patterns
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Speaker 3: necessarily broad raced across the sector, they are a high
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Speaker 3: end kind of river cruise oriented luxury niche.
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Speaker 2: For what I'm paying, this thing better be all inclusive.
5:32
Speaker 2: We got to go back and check. I'm not going
5:34
Speaker 2: to sit there and pay for every cocktail A class
5:37
Speaker 2: of rose. Vegas real quick, thirty seconds, Hew's Vegas, do
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Speaker 2: them now?
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Speaker 3: Vegas is better than last year, I think, is one
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Speaker 3: way to look at it. So only we have still
5:47
Speaker 3: see on the lower end of the market where you
5:48
Speaker 3: do see that kind of bifurcation between high and low
5:51
Speaker 3: end in Vegas. A bit more stability there where visitation
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Speaker 3: is kind of flattened out, Pricing is a bit better.
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Speaker 3: Twenty twenty five was a rougher year, had tougher event
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Speaker 3: comparisons and pressure on midweek leasure stays. So it's a
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Speaker 3: bit more stabilized and better this year.
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Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
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6:28
Speaker 5: We've been talking all morning and really for the last
6:31
Speaker 5: few days Paul about SpaceX and where this stock has
6:34
Speaker 5: been moving. It's currently up, so that fort day decline
6:37
Speaker 5: did not come to pass. It has stopped at three
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Speaker 5: days for now. But it was a painful three day
6:41
Speaker 5: slump down about twenty two percent if I recall correctly,
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Speaker 5: So you know, definitely a repricing of the initial euphoria
6:50
Speaker 5: following the IPO.
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Speaker 2: Yeah, having done a bunch of these equity deals, it
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Speaker 2: just felt like the stock was trying to find a
6:55
Speaker 2: home here and that's maybe worth like who really wants
6:58
Speaker 2: to own this sing long term? And this playing the
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Speaker 2: deal a little bit? So here we are, all right, and.
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Speaker 5: Of course we know that at the same time SpaceX
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Speaker 5: the company has announced a big, big bond sale as well,
7:08
Speaker 5: getting ready to sell investment grade bonds for the first
7:11
Speaker 5: time to refinance a bridge loan, but also, let's face it,
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Speaker 5: to fund this AI build out as well. So for that,
7:18
Speaker 5: of course, we need to bring in our in house
7:20
Speaker 5: expert on tech and bonds, and that is Robert Schiffman.
7:23
Speaker 5: He's our senior tech credit analyst here for Bloomberg Intelligence,
7:27
Speaker 5: rob what will you be watching for and listening for
7:29
Speaker 5: the next couple of hours here when it comes to
7:31
Speaker 5: this SpaceX bond debut.
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Speaker 6: I think I already know the story. Bondholders are going
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Speaker 6: to welcome SpaceX with arms wide open. You know, nobody
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Speaker 6: owns this deal, right. There's hundreds of billions of AI
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Speaker 6: related tech bonds that have been issued this year. There's
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Speaker 6: hundreds of billions of tech bonds outstanding, but this is
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Speaker 6: an inaugural offering, so everyone's going to want a little piece.
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Speaker 6: And quite frankly, the difference between how SpaceX is going
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Speaker 6: to show right in the bond market versus the equity
8:02
Speaker 6: market couldn't be much different. The valuations from the equity
8:05
Speaker 6: side may seem really, really lofty. I think it's the
8:09
Speaker 6: reverse for the credit markets. These bonds are going to
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Speaker 6: come wildly wide to where comparably rated investment grade names trade,
8:18
Speaker 6: and I think that's going to track a lot of attention.
8:20
Speaker 5: Did it surprise you that it got investment grade ratings
8:23
Speaker 5: even though it doesn't have much of a track record
8:26
Speaker 5: almost no track record as a publicly traded company. I
8:29
Speaker 5: mean one of our Bloomberg News stories or other reporters
8:32
Speaker 5: have pointed out that in Video was given the same rating,
8:35
Speaker 5: and in Video had a much longer track record as
8:37
Speaker 5: a publicly trade traded company than SpaceX does at the moment.
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Speaker 6: No, I wasn't surprised. Quite frankly, I think the plans
8:46
Speaker 6: for the buildout have been reasonably well known, so for
8:49
Speaker 6: people who are looking at the SpaceX equity IPO, they
8:53
Speaker 6: had a really good understanding of how much money was
8:55
Speaker 6: going to be spent over the next handful of years.
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Speaker 6: And quite frankly, you can't have of negative free cash
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Speaker 6: flow that's twenty thirty forty billion dollars annually without access
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Speaker 6: to low cost, cheap capital a big pool that was equities.
9:10
Speaker 6: They raised eighty five billion dollars of equity, but they're
9:12
Speaker 6: probably going to need another one hundred billion dollars of debt.
9:16
Speaker 6: So if you had plans to borrow that much and
9:19
Speaker 6: thought you can do it in the junk markets, you'd
9:22
Speaker 6: be thought of as crazy. So I think this is
9:24
Speaker 6: pretty well understood. I do get it why people say,
9:28
Speaker 6: how are these ratings so high, and I think you
9:30
Speaker 6: just need to look into the future a little bit
9:33
Speaker 6: and look at the past. One is they're sitting on
9:35
Speaker 6: one hundred billion dollars of cash. Two as they're committed
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Speaker 6: to IG ratings and reasonably low leverage. Three is their
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Speaker 6: liquidity profile looks fantastic. They have access to huge pools
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Speaker 6: of both equity and debt capital, and their burn rate
9:47
Speaker 6: it's going to take them three or four years to
9:48
Speaker 6: even get through the amount of capital that they have today.
9:52
Speaker 6: So do you want a question where this company might
9:55
Speaker 6: be in five years and what leverage is going to
9:57
Speaker 6: look like, and are they going to be successful? I
10:00
Speaker 6: think it's a good debate. And I think when you're
10:02
Speaker 6: comping or are they in aerospace and defense company or
10:04
Speaker 6: they communications company? Are they an AI tech company? That
10:07
Speaker 6: that all of that creates I think more opportunity for
10:10
Speaker 6: bond holders because the bond deal gets priced probably wider
10:13
Speaker 6: than inherently it should.
10:14
Speaker 2: There's definitely an elon factor, a positive elon factor in
10:18
Speaker 2: the equity markets. Is this such a thing with you
10:21
Speaker 2: credit guys who are a little bit more sober.
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Speaker 6: Well, I hear so much about how everyone you know
10:26
Speaker 6: in the AI world rather just invest in equity because
10:29
Speaker 6: if they're right, there's huge upside. And with bonds, if
10:32
Speaker 6: you're right, you get paid back par and if you're wrong,
10:35
Speaker 6: you get crushed. That's actually silly. You know, every basis
10:38
Speaker 6: point in the fixed income markets make a huge difference,
10:42
Speaker 6: and if you're coming at it spreads at our one
10:44
Speaker 6: hundred basis points wide to peers that pays for the
10:47
Speaker 6: Elon Musk risk. I would actually argue, there's Elon Musk reward.
10:51
Speaker 4: I know this.
10:51
Speaker 6: You know some people have cringed at this, but I
10:53
Speaker 6: think you know, Elon Musk is to today's generation what
10:57
Speaker 6: Warren Buffett was to the prior generation in terms of
11:00
Speaker 6: value creation. He I think the future that he sees
11:04
Speaker 6: is a lot different than what a lot of other
11:06
Speaker 6: people see. I think his ability to execute is much
11:09
Speaker 6: higher than what people are giving credit for. Quite frankly,
11:11
Speaker 6: he does get a lot of credit. And it's a
11:12
Speaker 6: two trillion dollar equity market cap. So you know, for
11:16
Speaker 6: everyone who wants to pooh pooh all the risk, you know,
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Speaker 6: people are riding the Elon wave.
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Speaker 5: Okay, so the bond market is giving Elon Musk the
11:23
Speaker 5: benefit of the doubt. It sounds like does the bond
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Speaker 5: market give any other CEO founder company that same level
11:31
Speaker 5: of benefit.
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Speaker 6: Well, the difference between SpaceX and the rest of these
11:37
Speaker 6: other AI companies, you know, we've said this so many
11:39
Speaker 6: times before, is the other names are basically the mount
11:41
Speaker 6: rushmore credits. You know, they're double as and triple a's,
11:43
Speaker 6: So they inherently have built in credibility because they have
11:47
Speaker 6: so much financial flexibility. So what if Amazon borrows another
11:50
Speaker 6: one hundred billion, or if Alphabet borrows you know, one
11:53
Speaker 6: hundred and fifty billion, the bounce sheet is going to
11:56
Speaker 6: be fine.
11:56
Speaker 3: Here.
11:57
Speaker 6: You know, you're starting with a company, it doesn't have
11:59
Speaker 6: a lot of EBITD it's big negative free cash flow,
12:01
Speaker 6: doesn't have this long long track record of success. So
12:05
Speaker 6: ultimately what happens Listen, spreads are at historically tight levels.
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Speaker 6: Everyone is looking for the next basis point to help perform.
12:14
Speaker 6: If you price something right, it's going to sell. These
12:18
Speaker 6: bonds look like they're going to be priced dramatically wide
12:21
Speaker 6: to triple be alternatives. So even if the long term
12:26
Speaker 6: you think there's real question marks, in the short term,
12:28
Speaker 6: you're going to try to get bonds. You're going to
12:31
Speaker 6: buy bonds now and ask questions later, and I think
12:34
Speaker 6: that's going to support this steal.
12:36
Speaker 2: Stay with us.
12:36
Speaker 5: More from Bloomberg Intelligence coming up after this.
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Speaker 5: All right, well, we talked a little bit about SpaceX,
12:59
Speaker 5: and it's a company that we kind of can't ignore
13:02
Speaker 5: given the market debut what had over the last couple
13:05
Speaker 5: of days. And man Deep Singh is here with us.
13:07
Speaker 5: He is our go to guy and all things tech.
13:10
Speaker 5: He is our global tech research head here at Bloomberg Intelligence. Mandeep,
13:13
Speaker 5: you look at what is happening with SpaceX, and Paul
13:17
Speaker 5: put it really well in that it's just kind of
13:19
Speaker 5: trying to find its place. People are trying to figure
13:22
Speaker 5: out what the right price looks like for a company
13:25
Speaker 5: like this after all the fanfare and then you know
13:28
Speaker 5: the flushing out maybe of some of the early investors.
13:31
Speaker 5: What do you see as the most enduring narrative for
13:34
Speaker 5: this company now that it's just over a week into
13:37
Speaker 5: its life as a publicly traded company.
13:39
Speaker 7: Well, I think clearly during the road show, people got
13:44
Speaker 7: really excited about the orbital data centers and you know,
13:48
Speaker 7: the space launches, but we know they don't generate any
13:51
Speaker 7: revenue right now. And I think people are coming to
13:55
Speaker 7: the realization that this requires a lot more upfront capital,
13:59
Speaker 7: which is why they are doing that bond issuance. And
14:02
Speaker 7: then there will be some equity issuance to close out
14:05
Speaker 7: the Cursor acquisition, so they will be adding you know,
14:08
Speaker 7: three percent more stock to close out that deal. And look,
14:12
Speaker 7: if you are an investor in this company who is
14:17
Speaker 7: getting diluted right now, it's reasonable to say some people,
14:22
Speaker 7: you know, aren't it there for the long term, and
14:26
Speaker 7: there's a shakeout that's going on, and we'll figure out
14:29
Speaker 7: who wants to believe in the company long term, because
14:32
Speaker 7: this is not a free cash flow or a stock
14:34
Speaker 7: buybackstory anytime soon.
14:37
Speaker 2: All right, switching here's to Google here it's some AI
14:39
Speaker 2: dudes are departing Google. I mean, should Google be worried
14:43
Speaker 2: about this? Some of their talent leaving?
14:46
Speaker 7: I think so. I mean the fact that the market
14:49
Speaker 7: cap dropped by two hundred and fifty billion probably is
14:51
Speaker 7: an exaggeration. So It just goes to show they probably
14:54
Speaker 7: should have paid these guys anything to retain them. But look,
14:59
Speaker 7: when it comes to frontier models, there is no doubt
15:03
Speaker 7: that Entropic is ahead. Even open Ai has been releasing
15:07
Speaker 7: their models at a faster pace. And this space is
15:11
Speaker 7: all about leap frogging your competitors when it comes to
15:15
Speaker 7: the model intelligence layer. I mean Entropics Mythos release, everyone
15:20
Speaker 7: is freaking out in terms of the capabilities of the model,
15:24
Speaker 7: to the extent that the government has blocked access. Why
15:27
Speaker 7: because they are at the frontier of intelligence. So does
15:31
Speaker 7: Google have an equivalent model? No, the answer is no.
15:34
Speaker 7: And when will they be releasing it? We don't know,
15:37
Speaker 7: which is why they will end up losing talent because
15:41
Speaker 7: everyone now believes Entropic is at the frontier, and Entropics
15:45
Speaker 7: seems to be gaining a lot of talent.
15:48
Speaker 2: It's always been a talent driven technology, you know.
15:52
Speaker 5: But it feels more blood bloody than it ever has, right.
15:55
Speaker 5: I mean, in terms of the pecking order of companies
15:59
Speaker 5: that have their pick for talent, Anthropic you point out
16:02
Speaker 5: is at the top.
16:03
Speaker 2: Is open Ai still up there?
16:04
Speaker 5: I mean open Ai has lost a little bit of
16:06
Speaker 5: its momentum to anthropic. Where does SpaceX rank. Where does
16:10
Speaker 5: you know the hyperscalers, where do they land?
16:12
Speaker 7: And that's a great question. So which is why that
16:15
Speaker 7: acquisition of Cursor was so timely. I know this stock
16:18
Speaker 7: is dropping last three days, but had it not been
16:21
Speaker 7: for the Cursor acquisition, I bet you the stock would
16:24
Speaker 7: be under hundred dollars. So Cursor really did make a
16:27
Speaker 7: difference in terms of one getting that coding agent use
16:31
Speaker 7: case and you know, giving a narrative that they can
16:34
Speaker 7: scale this. And also the talent. I mean, Cursor co
16:37
Speaker 7: founders are probably the smartest guys and AI and highly
16:40
Speaker 7: sought after. So I hope they're able to retain that
16:43
Speaker 7: talent that they got from Cursor. But clearly a great acquisition.
16:47
Speaker 7: And to your point about open Ai, yes they have
16:49
Speaker 7: lost momentum. Remember open Ai ended up bringing on the
16:53
Speaker 7: co founder or the founder of open Claw.
16:57
Speaker 2: Open Claw was like the next big.
16:59
Speaker 7: Thing at the start of the year. Everyone was talking
17:02
Speaker 7: about what is going to be that agenty platform on
17:05
Speaker 7: your smartphones and edge devices. Open Claw co founder went
17:10
Speaker 7: to open Ai. And you know that's where it makes
17:14
Speaker 7: a huge difference where these guys end up because they
17:17
Speaker 7: have the vision and if they find Anthropic to be
17:21
Speaker 7: the place or open AI, that makes a huge difference.
17:24
Speaker 2: Stay with us.
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Speaker 5: More from Bloomberg Intelligence coming up after this.
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Speaker 2: about what you found out.
18:27
Speaker 4: Yeah, definitely, thank you for having me on to talk
18:29
Speaker 4: about this. I mean, Lily is an amazing story. The
18:32
Speaker 4: company is one hundred and fifty years old. There's only
18:35
Speaker 4: a handful of American companies that are still still sort
18:38
Speaker 4: of look the same as they did one hundred and
18:40
Speaker 4: fifty years ago, and so Lily is one of them.
18:43
Speaker 4: It's a pretty good American company story. But they've really
18:46
Speaker 4: transformed over the last few decades. They had, you know,
18:49
Speaker 4: they were one of the first to develop the pulk
18:54
Speaker 4: the polio vaccine treatments for COVID. They've had antibiotics kind
18:59
Speaker 4: of silling many many things over the years and have
19:03
Speaker 4: been at the forefront of many different medical breakthroughs. But
19:06
Speaker 4: they had sort of a dry spell in between that
19:08
Speaker 4: a couple you know, couple decades ago that really made
19:12
Speaker 4: it hard. I mean, their stock price was down, there
19:14
Speaker 4: was CEO turnover. But now we've seen weight loss drugs
19:18
Speaker 4: really pull them out of that and make them into
19:21
Speaker 4: this trillion dollar company and the most valuable healthcare company
19:24
Speaker 4: in the world. So it's a pretty amazing transformation and
19:28
Speaker 4: story of what happens to a company when they have
19:31
Speaker 4: and a huge blockbuster product like these weight loss drugs
19:34
Speaker 4: have been.
19:35
Speaker 5: Yeah, I'm just thinking about you know, as recently as
19:38
Speaker 5: June of twenty twenty, we were looking at Pfizer as
19:41
Speaker 5: kind of the shining star of the pharma world because
19:43
Speaker 5: of its COVID vaccine, and Eli Lilly, you know, did
19:47
Speaker 5: not come up in the same kinds of conversations. What
19:51
Speaker 5: you've done in your story is really highlight how much
19:53
Speaker 5: has changed between say, twenty seventeen to twenty twenty six.
19:58
Speaker 2: Dave Rix became CEO.
19:59
Speaker 5: Of E Lily back in twenty seventeen, and at the time,
20:02
Speaker 5: the pharma industry was not held in high esteem by Americans.
20:06
Speaker 5: There was a lot of mistrust directed at the pharma companies.
20:10
Speaker 5: He has helped turn that around. I wonder how much
20:12
Speaker 5: of the credit he deserves versus what was kind of
20:15
Speaker 5: already in the pipeline at Eli Lilly, and he was
20:18
Speaker 5: at the helm when it all came to fruition.
20:21
Speaker 4: Yeah. No, that's a great question, Scarlet, because you know,
20:24
Speaker 4: over time, these these drugs don't come out of thin air,
20:27
Speaker 4: and I think that that's one of the things that
20:29
Speaker 4: this GLP one boom really surprised people is like it
20:32
Speaker 4: seemed like it was sort of an overnight sensation that
20:35
Speaker 4: these weight loss drugs became popular, that people started talking
20:38
Speaker 4: about them. But really, scientists that both Lily and Nova
20:41
Speaker 4: Noordisk have been working on GLP one drugs for several
20:44
Speaker 4: decades and so it's something that has been going on
20:47
Speaker 4: behind the scenes for a while. But to Dave Rix's credit,
20:50
Speaker 4: he was the one, you know, when he became CEO,
20:52
Speaker 4: he was like, we need to move as fast as possible.
20:55
Speaker 4: At the time, Lily was one of the slowest in
20:57
Speaker 4: the industry when it came to drug development. Took them
21:00
Speaker 4: thirteen to fourteen years to bring a drug from their
21:03
Speaker 4: labs to an actual approved product, and there's lots of
21:06
Speaker 4: trial and error in that too, you know, most drugs
21:08
Speaker 4: don't actually make it to an approval. And so he said,
21:11
Speaker 4: you know, to all of their scientists and all of
21:13
Speaker 4: the executives at the time, like, we need to make
21:16
Speaker 4: speed the number one priority, and we need to look
21:18
Speaker 4: at everything we're doing, find the most promising science, and
21:22
Speaker 4: then go as fast as we possibly can. So that's
21:25
Speaker 4: what they did really with turzepetide, which is the molecule
21:28
Speaker 4: that became Manjaro and zep bound that's the active ingredient,
21:32
Speaker 4: and that was sort of like the pilot. That was
21:34
Speaker 4: the first time that they really did this and gave
21:36
Speaker 4: it the full speed treatment. And what we saw was
21:38
Speaker 4: that they were able to bring this drug really to
21:40
Speaker 4: the market in around five years, which is a huge
21:43
Speaker 4: reduction in time from what we were seeing before with Lily.
21:47
Speaker 4: And so they've applied that across the board now to everything.
21:50
Speaker 4: And Dave Brooks has also taken steps to make the
21:52
Speaker 4: company more consumer facing, to engage more directly with patients,
21:56
Speaker 4: to cut prices. When you know, we're we been seeing
22:00
Speaker 4: a lot of outcry and a lot of attention on
22:03
Speaker 4: how expensive GLP one drugs are. They're still pretty expensive,
22:08
Speaker 4: maybe not necessarily super affordable for all Americans, but to
22:11
Speaker 4: Rix's credit, he's taken steps to cut the cash pay
22:15
Speaker 4: price of these drugs so that more people can afford
22:17
Speaker 4: them because we're still seeing a lot of patchy insurance
22:20
Speaker 4: coverage with these obesity medications. So he's taken he has
22:23
Speaker 4: been unafraid to take risks and to do things differently
22:29
Speaker 4: than his predecessors and than his peers in the pharmaceutical industry.
22:33
Speaker 4: So he does deserve a lot of the credit for.
22:35
Speaker 2: That, Madison. One of the challenges I think for managing
22:38
Speaker 2: these pharma companies and investing in these pharma companies is
22:40
Speaker 2: once if you're lucky enough to get a really successful drug,
22:44
Speaker 2: sooner or later patent's expiring, competition arrives here. How does
22:49
Speaker 2: Eli Lily plan to deal with that with its weight
22:52
Speaker 2: loss drugs.
22:53
Speaker 4: Yeah, that's exactly right, and that's something Lily's still trying
22:56
Speaker 4: to figure out. The strategy right now is to sort
22:59
Speaker 4: of deploy this cash that they have this massive windfall
23:03
Speaker 4: from the success of its obesity medications into everything. I mean,
23:08
Speaker 4: they're infusing billions of dollars into their internal R and
23:11
Speaker 4: D programs, so, you know, focusing on the science that
23:15
Speaker 4: they have going on in their labs, but they're also
23:17
Speaker 4: looking externally. They've been on a record spending spree this year.
23:21
Speaker 4: Lily was a company that typically didn't do as big
23:24
Speaker 4: of deals as its pharmaceutical rivals, but now we're seeing
23:28
Speaker 4: Lily spend a lot more on other external science, acquiring
23:32
Speaker 4: different companies, doing more deals, so that's part of it.
23:35
Speaker 4: We're also seeing them spend a lot on AI, and
23:38
Speaker 4: AI is interesting in drug development because there's a lot
23:41
Speaker 4: of promise there, but so far we haven't seen a
23:43
Speaker 4: lot of that come to fruition in terms of you know,
23:46
Speaker 4: turning these you know AI finding new drugs and those
23:50
Speaker 4: coming to market and being revolutionary cures for patients. Like
23:53
Speaker 4: that's not really happening yet, but it could happen one day.
23:56
Speaker 4: And so Lily is spending on AI as well. They
23:59
Speaker 4: have a partnership with Nvidia, they have a supercomputer at
24:03
Speaker 4: their headquarters in Indianapolis, and so they're also looking to
24:06
Speaker 4: AI and saying, if this is something that's going to
24:10
Speaker 4: revolutionize and change drug development, we want to be there.
24:13
Speaker 4: And so they're really doing everything they possibly can. But
24:17
Speaker 4: it'll be a fascinating story to watch because obviously, right
24:20
Speaker 4: now we don't know what's going to happen. Lily doesn't
24:22
Speaker 4: know what's going to happen, and it will be pretty
24:25
Speaker 4: incredible if they are able to sort of break out
24:28
Speaker 4: of this boom and bus cycle that every pharmaceutical company
24:32
Speaker 4: in the history has sort of had to deal with.
24:35
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