Latest / Bloomberg Intelligence / Despite All the Noise, PPE Is Only 1% of 3M's Bottom Line

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Despite All the Noise, PPE Is Only 1% of 3M's Bottom Line · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg penl podcast. I'm Paul swing you,
0:05
Speaker 1: along with my co host Lisa Brahma wits. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
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Speaker 1: you and your money. Whether at the grocery store or
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Speaker 1: the trading floor. Find a Bloomberg Penil podcast on Apple
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Speaker 1: podcast or wherever you listen to podcasts, as well as
0:18
Speaker 1: at Bloomberg dot com. Let's talk industrial earnings. We had
0:22
Speaker 1: three M, we had Caterpillar out today, Lots of uncertainty
0:26
Speaker 1: in a second quarter, lots of uncertainty to the point
0:28
Speaker 1: of withdrawing guidance, as we've seen from a lot of
0:31
Speaker 1: other companies, from some of these industrial companies as well.
0:34
Speaker 1: When we want to talk industrial companies, we talked to
0:36
Speaker 1: town double Heart. She's covered this space for decades. She's
0:39
Speaker 1: with Bloomberg Intelligence. Karen, thanks so much for joining us.
0:42
Speaker 1: So three M and Caterpillar take whatever you want. The
0:46
Speaker 1: highlights you think we need to know. Um, I'd say
0:49
Speaker 1: number one, the breath of of the decline. So everybody
0:52
Speaker 1: knew things are gonna be down and down double digits,
0:55
Speaker 1: but cat every region, every segment. UM three M did
0:59
Speaker 1: a little better because of the diversity UM. So it's
1:02
Speaker 1: really the swiftness of the drop that UM is the issue.
1:06
Speaker 1: Second thing is costs are doing pretty well. The decrimental
1:09
Speaker 1: margins were not that at Caterpillar, given two cent sales declines.
1:14
Speaker 1: They really didn't do that badly on costs because a
1:16
Speaker 1: they haven't taking out structural costs for years and B
1:19
Speaker 1: they did move fa UM on three m You know,
1:22
Speaker 1: they have a diversity that actually helps them. And I
1:25
Speaker 1: am a fan of the UM multies if they're well run,
1:28
Speaker 1: although they're out of favor at the moment. And U
1:31
Speaker 1: they also saw declines and they're gonna expect double digit
1:34
Speaker 1: declines in April, but not as significant as, of course,
1:37
Speaker 1: the deep cyclicals UM. I'd say. The other point is
1:40
Speaker 1: everybody was talking about three ms ppe impact, you know,
1:44
Speaker 1: all the respirators. It's less than one percent of sales.
1:47
Speaker 1: It's certainly helped, but it wasn't a big deal. And yes,
1:50
Speaker 1: they're all eliminating guidance, you know, go ahead, go ahead.
1:53
Speaker 1: I'm sorry, Well, no, no, I'm wondering. I was reading
1:55
Speaker 1: a story the other day about how executives never like
1:59
Speaker 1: to waste a good crisis, and that basically it's a
2:01
Speaker 1: fantastic opportunity to to accelerate moves that they would already
2:06
Speaker 1: be doing or find it prudent to do under the
2:09
Speaker 1: cover of it's a crisis. And there's no place that
2:12
Speaker 1: that actually is more relevant than in the industrial space,
2:16
Speaker 1: where there's been an incredible transformation, whether it's downsizing and
2:19
Speaker 1: shrinking and becoming more focused or other moves. What do
2:24
Speaker 1: you glean from the earning so far in terms of
2:28
Speaker 1: ways that they are reshaping in the wake of this
2:30
Speaker 1: that they may have done anyway. Yeah, I mean in
2:33
Speaker 1: the case of the two we're talking about today, CAT
2:36
Speaker 1: and three M, they both have long term structural programs
2:38
Speaker 1: going on, and they have I mean CAT use the example.
2:42
Speaker 1: Uh there there s g n A and their R
2:44
Speaker 1: and D in sort of their non manufacturing custs were
2:48
Speaker 1: flat um from nineteen while revenues were so I mean,
2:53
Speaker 1: they have already been taken big chumps of um costs
2:57
Speaker 1: and people, etcetera out of their business. But certainly they're
3:00
Speaker 1: going to accelerate that. They're gonna call it more structuring,
3:03
Speaker 1: but I'm sure they're going to try to hold on
3:06
Speaker 1: to as much of the cost production as they can.
3:08
Speaker 1: I mean. The other big change is going to happen,
3:10
Speaker 1: of course, is supply chain is going to change a
3:13
Speaker 1: lot because why did we learn how long supply chain
3:17
Speaker 1: from abroad are not good? And um, so you're gonna
3:19
Speaker 1: see a lot more. I mean three M does a
3:21
Speaker 1: lot of local for locals still as Cato killer, but
3:24
Speaker 1: around the margin, there's going to be changes in that
3:26
Speaker 1: as well. Um And you know, so I think it's
3:29
Speaker 1: going to be a continuation um. And they're going to
3:32
Speaker 1: try to hold on as much as as much of
3:34
Speaker 1: the cyclical structuring that they're doing as they can. So
3:37
Speaker 1: that's I would agree with you there. So, Karen, I
3:40
Speaker 1: know a lot of these companies, industrial companies have been
3:42
Speaker 1: pulling their guidance like a lot of other sectors as well.
3:46
Speaker 1: But did the management give you a sense of kind
3:48
Speaker 1: of what their playbook is. Are they thinking that this
3:51
Speaker 1: economic contraction that we're is occurring in the second quarter
3:54
Speaker 1: is going to be lower for longer or do they
3:57
Speaker 1: expect this economy wants it's to we start to but
4:00
Speaker 1: up to to re accelerate in the second half of
4:02
Speaker 1: the year. I think the general seems so far is
4:05
Speaker 1: lower for longer, Like you know, second quota is going
4:07
Speaker 1: to be terrible. Third quota is not going to be
4:09
Speaker 1: great either. And you know a lot of these guys
4:11
Speaker 1: still have significant US exposure where it's going to roll
4:14
Speaker 1: down and of the shutdowns and it's probably gonna be
4:16
Speaker 1: a roll back up. Um. Both Caterpillar M three M
4:20
Speaker 1: did mention the snap back in China, but that's the
4:23
Speaker 1: managed economy, so they shut it down quickly and they're
4:26
Speaker 1: spending money, um, you know, on on stimulation and of
4:30
Speaker 1: the economy and getting people back to work quickly as well.
4:33
Speaker 1: So I would not and in fact that question came
4:35
Speaker 1: up in the three M call. Could we use that
4:37
Speaker 1: as a playbook? China is different, Um, Europe is snapping
4:41
Speaker 1: back a little bit. US is going to roll out slowly.
4:44
Speaker 1: Is the general sense is going to definitely be a
4:47
Speaker 1: tough year. I will say one thing on China three
4:50
Speaker 1: M is the economy with the diversity of their product
4:52
Speaker 1: line they set across the boards map back. It isn't
4:54
Speaker 1: just you know, one or two segments, So that economy
4:57
Speaker 1: is starting to roll back up. That's that's interesting. And
5:01
Speaker 1: just real quick here, Karen, do we have a sense
5:03
Speaker 1: of whether the pace of the snap back is I
5:06
Speaker 1: hate saying this. I actually am feeling a visceral response
5:09
Speaker 1: v shaped or is it a slower it douns back
5:13
Speaker 1: or a w or you um, the China feels like
5:19
Speaker 1: a the you know, um us probably pretty slow roller.
5:23
Speaker 1: And and I don't think you're gonna see good numbers still,
5:27
Speaker 1: you know, because you know there are you know, we're
5:31
Speaker 1: we're fighting over house fess we're gonna come back, you know.
5:33
Speaker 1: And uh so I and really the companies are really saying,
5:37
Speaker 1: we're going month by month, we don't know. And April,
5:40
Speaker 1: we know is going to be down in the in
5:42
Speaker 1: like the multi in the cyclicals, you know, but we
5:47
Speaker 1: don't really know. And and three M, which who never
5:50
Speaker 1: gives monthly orders, are giving monthly orders right now until
5:54
Speaker 1: we know what the heck is going on. Emerson is
5:56
Speaker 1: also doing it, so they don't know, but they're going
5:59
Speaker 1: to try to give us as much as they can
6:01
Speaker 1: along the way. They don't know. Seems to be the
6:04
Speaker 1: theme of this earning season. Karen yu Bilhard, thank you
6:07
Speaker 1: so much for being with US senior industrials analyst for
6:10
Speaker 1: Bloomberg Intelligence. And you know, honestly, John Farrows raised this point.
6:13
Speaker 1: A number of times. How can any company actually give
6:16
Speaker 1: guidance at this point given the fact that people have
6:19
Speaker 1: a real lack of clarity around what's going to happen.
6:21
Speaker 1: But the fact that they're giving monthly order numbers just
6:25
Speaker 1: to say, hey, we'll give you the data as quickly
6:28
Speaker 1: as we get it. Yeah, exactly, And the questions, well,
6:31
Speaker 1: what will this do to forward guidance going forward? Will
6:33
Speaker 1: companies give less of it? Maybe it's time to check
6:39
Speaker 1: in with Bloomberg Opinion. We're pleased to be joined by
6:41
Speaker 1: opinion communist Dr Ellen Wall. She's a president of Transversal Consulting,
6:46
Speaker 1: also a Bloomberg Opinion contributor. Uh. Dr Wall, thank you
6:49
Speaker 1: so much for joining us. Boy, you know this, what
6:51
Speaker 1: we're seeing in the oil market is just extraordinary. We
6:54
Speaker 1: had negative prices just a week ago. We had tremendous
6:57
Speaker 1: volatility so far, uh this week a little bit of
7:00
Speaker 1: it today. What if you could just set the stage,
7:02
Speaker 1: Force Ellen, and just give us a sense of where
7:05
Speaker 1: you think the supply and demand dynamics are today for
7:09
Speaker 1: global crude. Yeah, the supply and dynamic dynamics for um
7:14
Speaker 1: for crude are not good. Looking at what's happening and
7:19
Speaker 1: we've still gone I think, by the way, not good
7:23
Speaker 1: carry on good. So that way too much oil oil
7:28
Speaker 1: production coming on the market on the market right now,
7:31
Speaker 1: and not nearly enough demand, and that's resulted in a
7:34
Speaker 1: massive build in storage. And we're not just talking about
7:38
Speaker 1: storage of crude. We're talking about gasoline stocks are way up,
7:43
Speaker 1: diesel fuel, jet fuel. Massive amounts of this stuff is
7:46
Speaker 1: piling up. And even though refineries are cutting their runs now,
7:51
Speaker 1: that's leading to even more build up of crude oil.
7:54
Speaker 1: And so that's really the main issue here as I
7:57
Speaker 1: think this in balance and supply and demand, which was
7:59
Speaker 1: not helped, by the way by Saudi Arabia, which increased
8:02
Speaker 1: its oil production to its maximum level of twelve million
8:06
Speaker 1: barrels per day in April, and at the beginning of April,
8:10
Speaker 1: you know, it seemed like that that might be okay,
8:12
Speaker 1: but but really, uh runs economies around the world, we're
8:16
Speaker 1: clearly shutting down. We maintain that production when clearly there
8:20
Speaker 1: wasn't enough demand. So that kind of just piled on
8:23
Speaker 1: to all of the other issues. So this complete imbalance
8:27
Speaker 1: has been manifested, most significantly in the negative pricing in
8:30
Speaker 1: the May w t I contract that just rolled. We're
8:33
Speaker 1: seeing an exodus from the June contract as the biggest
8:37
Speaker 1: oil et F in the United States amends it's it's contracts,
8:42
Speaker 1: it's it's it's provisions, yet again in terms of what
8:45
Speaker 1: it is willing to buy. My question is how long
8:48
Speaker 1: will this complete imbalance last? A lot of people putting
8:51
Speaker 1: faith that by to lie, things will start to ease
8:54
Speaker 1: and people will start to use cars and fly around more.
8:57
Speaker 1: Do you think that that optimism is misplaced? Well, I
9:01
Speaker 1: think that that's a that's a it's not a bad assessment. Um,
9:05
Speaker 1: I would say that's it's it's optimistic, But I don't
9:07
Speaker 1: think it's it's too optimistic. I do think a lot
9:10
Speaker 1: will depend on, uh, the psychological effects of this lockdown
9:15
Speaker 1: in these quarantines, because even as states in the United
9:19
Speaker 1: States we're seeing them start to lift quarantine restrictions and
9:23
Speaker 1: lockdown restrictions. The question really is are people going to
9:27
Speaker 1: feel comfortable going out of their houses, going back to work,
9:31
Speaker 1: sending kids to school or camp? And that I think
9:35
Speaker 1: will really set the tone for whether we're going to
9:38
Speaker 1: seek demand roaring back or kind of slowly trickling back.
9:43
Speaker 1: And that could really, you know, that could spill over
9:46
Speaker 1: past the summer and then over into into the fall
9:50
Speaker 1: and winter. Even win demand is traditionally lower, so were
9:55
Speaker 1: we could even compound the problem if we don't have
9:58
Speaker 1: strong summer demand by by heading into winter with lower demands.
10:03
Speaker 1: On the other hand, okay, we could see a massive
10:06
Speaker 1: search in gasoline demand in the United States, for example,
10:09
Speaker 1: as if things get back to normal and people are
10:12
Speaker 1: psychologically ready to get back out there, but air travels
10:16
Speaker 1: not back, we could see a huge surge in gasoline
10:18
Speaker 1: demand as people drive a lot more. So. It really,
10:21
Speaker 1: I think depends a lot on how comfortable people feel,
10:24
Speaker 1: and also how comfortable they're made to feel by the
10:28
Speaker 1: authorities and medical professionals. So, Ellen, how bad is it
10:32
Speaker 1: going to get for our friends in the U S.
10:34
Speaker 1: Shail patch? It's already bad h and I think it's
10:39
Speaker 1: only going to get worse. It's it's very bad. Companies
10:43
Speaker 1: are shutting down. And the question I think now is
10:46
Speaker 1: not just is it going to be bad for those
10:49
Speaker 1: in the upstream, but is it going to spill over
10:51
Speaker 1: into the midstream, into the pipeline, into the people who
10:54
Speaker 1: are who are doing the midstream business? Uh? And are
10:57
Speaker 1: we going to see it spilling into into that area
11:00
Speaker 1: because um we're we're seeing we can expect more layoffs.
11:04
Speaker 1: I think we've already seen a lot bankruptcies. But then
11:07
Speaker 1: the question is does is still into midstream and do
11:09
Speaker 1: we see long term damage to our midstream infrastructure and
11:14
Speaker 1: our ability to um you get that oil to where
11:17
Speaker 1: it needs to go, because that has for many years
11:21
Speaker 1: been kind of the limiting factor and we were just
11:23
Speaker 1: starting to get over that issue right when this hits
11:28
Speaker 1: just real quick here, Allen, I'm wondering what this means
11:30
Speaker 1: in terms of the swining oil prices for Saudi Arabia
11:33
Speaker 1: and any potential political threat. Given how much of the
11:38
Speaker 1: nation's budget relies on crude. I think that's that's an
11:42
Speaker 1: issue that cannot be ignored, particularly at this point because
11:46
Speaker 1: crude oil, I mean we have we have Brent barely
11:49
Speaker 1: above twenty barrel, and at that level, Saudi Arabia is
11:54
Speaker 1: making just a few dollars in royalties off of every
11:58
Speaker 1: barrel of oil it and that's not good for the
12:02
Speaker 1: Saudy budget. And so far, what we've seen is basically
12:06
Speaker 1: a complete dismissal of these issues. The Socauty government is
12:10
Speaker 1: choosing to rely on um borrowing money and that's not
12:14
Speaker 1: a bad idea, said, maybe it definitely has more room
12:16
Speaker 1: to borrow, but they're not. I think we're seeing them
12:20
Speaker 1: not really look at the long term nifications here. Dubai
12:23
Speaker 1: just announced that they're cutting cutting their expenses, and so
12:27
Speaker 1: it's really unclear as to whether they're going to see
12:30
Speaker 1: a need to cut expenses. Uh, the country could could
12:33
Speaker 1: be seeing some serious financial problems, which, as we know,
12:36
Speaker 1: can lead to political unrest. Ellen Wall, thank you so
12:40
Speaker 1: much for being with us. Ellen Wild, President of Transversal
12:42
Speaker 1: Consulting and a Bloomberg opinion contributor. In some ways, the
12:51
Speaker 1: US equity market is going to be put to the
12:54
Speaker 1: test this week as the big tech companies report earnings.
12:57
Speaker 1: The question is how much further can US talks rally
13:01
Speaker 1: if they don't necessarily have the leadership of the tech
13:05
Speaker 1: giants joining us. Now Jim Pulse in chief investment strategist
13:08
Speaker 1: at the Loophole Group joining us. I'm wondering, Jim, do
13:12
Speaker 1: you feel like the market cannot continue rallying without the support.
13:16
Speaker 1: And I don't want to say big tech. We're really
13:18
Speaker 1: talking Amazon, Microsoft and Netflix here. I think I could.
13:24
Speaker 1: I think I think that it. It would be hard
13:28
Speaker 1: if they are going to collapse, Lisa, you know, over
13:32
Speaker 1: a sustained period, have a big collapse. I think that
13:35
Speaker 1: would be hard for the market to avoid going down
13:39
Speaker 1: again in a big way. But if they just underperformed,
13:43
Speaker 1: I think that's maybe even to be expected somewhat in
13:47
Speaker 1: the sense that UM, you know, look look where we
13:52
Speaker 1: are here, where there's now greater expectations of restarting the
13:55
Speaker 1: economy after shutting it off the position UM and with
14:03
Speaker 1: that comes I think new leadership, and you're seeing that
14:08
Speaker 1: and things like the performance of the high Beata SMP,
14:11
Speaker 1: Hiberta Index, small caps, cyclical stocks, you know, over defensive stocks, UM,
14:19
Speaker 1: even international markets doing better. I think it's real likely,
14:24
Speaker 1: which often happens at the start of a new recovery.
14:27
Speaker 1: If you off the markets starting to look in discount path,
14:31
Speaker 1: is that's the type of leadership you get. UM, So
14:34
Speaker 1: it might well be the new era of growth if
14:36
Speaker 1: you will, does have a period of under performance as
14:40
Speaker 1: the economy re emerges from the code UH from the
14:43
Speaker 1: coronavirus crisis, and I don't I think that could happen
14:48
Speaker 1: within the context of the general rising market. Even though
14:51
Speaker 1: under performance by some of these most popular areas. So, James,
14:55
Speaker 1: the you're hearing more and more from scientists and medical
14:58
Speaker 1: professionals that it's possible, probably likely that the virus or
15:03
Speaker 1: return in some form and the fall in winter. Do
15:06
Speaker 1: you think the market's discounting that risk properly as we
15:09
Speaker 1: start thinking about reopening and and maybe a V or
15:12
Speaker 1: a U shaped recovery at the end of the year.
15:17
Speaker 1: Who knows for sure, Paul. I mean, there's very little
15:20
Speaker 1: about this whole crisis that everyone knows, um including myself.
15:26
Speaker 1: But you know, I do think one of the things
15:28
Speaker 1: that's likely to happen that there hasn't been a lot
15:31
Speaker 1: of discussion about, is sure, it's gonna take a while
15:36
Speaker 1: before this virus is gone. It's going to take a
15:39
Speaker 1: while before we get all parts of the economy back
15:43
Speaker 1: functioning again, even in general, let alone at full capacity. However,
15:50
Speaker 1: that does not mean that there might come sort of
15:53
Speaker 1: an appreciation among investors in general, companies, police officials that
16:00
Speaker 1: both this virus and the economy can coexist, and you know,
16:06
Speaker 1: both can be there and be a functioning capacity. I
16:11
Speaker 1: don't think it's one or the other necessary, which is
16:14
Speaker 1: what we had here of late. I think in part
16:17
Speaker 1: because the primary issue has been the hospital crisis, and
16:21
Speaker 1: we've come a long ways in increasing our capacity and
16:24
Speaker 1: abilities there, and we're probably even if we have a
16:27
Speaker 1: re emergency, viruses not like to be as severe as
16:31
Speaker 1: the first time, And that combination means that we might
16:36
Speaker 1: certainly have re emergent virus problems down the road, but
16:42
Speaker 1: that doesn't necessarily mean we're going to have to close
16:44
Speaker 1: everything back up again. I think we're already learning how
16:47
Speaker 1: to operate within the context of a live virus so um.
16:51
Speaker 1: I think one of the realizations that even the market
16:53
Speaker 1: might be coming to is that both can coexist. Collection
17:00
Speaker 1: and your calm assessment of markets is a very nice
17:03
Speaker 1: contrast with sometimes my my gut fear when I read
17:07
Speaker 1: some of the headlines that cross and you know, Moody's
17:09
Speaker 1: sending me a report fair enough, but you know, at
17:14
Speaker 1: least you know you know there there is there is
17:17
Speaker 1: sort of sanity and preservation. Right now. We should note
17:20
Speaker 1: that we are seeing the NASDAC turned down negative seven
17:22
Speaker 1: tenths of a percent right now, in the SP is
17:25
Speaker 1: just up a tenth of a percent to do up
17:27
Speaker 1: about a quarter of a percent, And I think to
17:29
Speaker 1: your point, you could have both the sort of reality
17:32
Speaker 1: of the unfolding crisis and also look to the other
17:35
Speaker 1: side of this. I guess, then, are you buying into
17:39
Speaker 1: this rally? Are you just sort of sitting tight and
17:41
Speaker 1: not expecting armageddon? Um? I definitely. And my approach, I
17:49
Speaker 1: guess is what we're doing star gapl Boil is kind
17:55
Speaker 1: of sitting with an overweight new era UM a mile overweight.
18:00
Speaker 1: I think, yeah, well, not just not just tech but
18:07
Speaker 1: kind of new era growth. It's a little broader than
18:10
Speaker 1: just tech, but certainly teching colms, part of healthcare, part
18:13
Speaker 1: of consumer discretionary. UM. You know, I I think I'm
18:19
Speaker 1: okay with with sitting in an overweight in that area.
18:23
Speaker 1: But what I'm doing is taking advantage of any weak
18:26
Speaker 1: periods here, which will probably have some more and I
18:29
Speaker 1: would start to add more in the broader participation is
18:33
Speaker 1: in this market that haven't done that well even in
18:36
Speaker 1: the last bowl. I look, as I said to High
18:39
Speaker 1: Beta SMP high Baya, that I'd looked to cyclical sectors
18:43
Speaker 1: would look too small caps. I've looked at international and
18:46
Speaker 1: add some of those compoets here because I think they
18:50
Speaker 1: are likely to have leadership over the next year as
18:53
Speaker 1: we as we sort of re emerge from this this thing.
18:56
Speaker 1: You know, you mentioned the fear, and to me, that's
19:01
Speaker 1: a that's a good thing. I think historically whenever we've
19:05
Speaker 1: had really high levels of fear, and we've got all
19:08
Speaker 1: three fears in this one. If you're losing your money
19:10
Speaker 1: in the stock market, if you're losing your job, and
19:13
Speaker 1: the fear of losing your life, if you're on steroids,
19:16
Speaker 1: if you will. Typically that's led to good returns and
19:20
Speaker 1: risk assets. Look, I know, but look where we are
19:27
Speaker 1: in this crisis too. You know. We we start when
19:29
Speaker 1: it first hit in China, we thought, well that that's
19:32
Speaker 1: not really a problem. And then well, it's just gonna
19:35
Speaker 1: be a temporary problem. And then it was this is
19:39
Speaker 1: full blown crisis. And now it's evolved too. Oh, it's
19:45
Speaker 1: never gonna go away. It's gonna last wherever, it's gonna
19:47
Speaker 1: fundamentally change capitalism. It's never gonna go away. I think
19:52
Speaker 1: that's the stages of a crisis that we're in the
19:55
Speaker 1: last stage at least committing Hey, James, thanks so much
19:59
Speaker 1: for joining us. We appreciate it, appreciate your calm perception
20:03
Speaker 1: of what's going on in the Marcus James Paulson, chief
20:05
Speaker 1: investment Strategies for the Luthold Group, on the phone from Minneapolis.
20:09
Speaker 1: We always appreciate his thoughts in the markets here, and
20:11
Speaker 1: at least you were just mentioning you kind of did
20:13
Speaker 1: a quick market check here. The market's really kind of
20:15
Speaker 1: rolled over after a strong opening here as I guess,
20:18
Speaker 1: we're digesting earnings and thinking about what the Fed may
20:21
Speaker 1: or may not say tomorrow. Yeah, good luck, good luck
20:24
Speaker 1: trying to find a narrative for this market. That's all
20:27
Speaker 1: I want to say. I mean, for minutes a minute,
20:29
Speaker 1: you could change the narrative, and it's easy to do
20:31
Speaker 1: it one way or another. Right now, let's take a
20:36
Speaker 1: look at the pharmaceutical industry after we did get some
20:39
Speaker 1: results from Merk and Fiser, and before we dig into those,
20:42
Speaker 1: we are going to be joined by Max Niece and biotech,
20:45
Speaker 1: pharma and healthcare columnist for Bloomberg Opinion. And I never
20:48
Speaker 1: want to miss up a chance to ask Max about
20:51
Speaker 1: vaccine development, where we are in terms of that, and
20:54
Speaker 1: how well international pharmaceutical companies as well as scientists are
21:00
Speaker 1: cooperating to move as quickly as possible to make this happen.
21:04
Speaker 1: So it does seem like there there is a broad
21:07
Speaker 1: movement towards cooperation UM companies, sharing science, beginning to focus
21:14
Speaker 1: on the issue of manufacturing its scale, which is the
21:17
Speaker 1: thing you have to worry about once you actually have
21:19
Speaker 1: an effective vaccine UM. There there was a report this
21:22
Speaker 1: week from from an organization called SEPPI that's working to
21:26
Speaker 1: do some that coordination in advanced candidates that they hope
21:29
Speaker 1: there may be a vaccine available for sort of limited
21:32
Speaker 1: emergency use by by the end of this year. But
21:35
Speaker 1: again that would be in very small quantities and only
21:39
Speaker 1: if everything goes very very right. So I still looking
21:42
Speaker 1: probably at at some time next year or later for
21:45
Speaker 1: first sort of the broadly available vaccine that it would
21:49
Speaker 1: take to to really get get life back to normal.
21:52
Speaker 1: So Mark did report earnings today and they waited in
21:56
Speaker 1: on the potential for a vaccine. What do they have
21:58
Speaker 1: to say? So Mark is a company that that has
22:02
Speaker 1: been a little bit later to to sort of join
22:05
Speaker 1: the fray UM. They they are actually the one company
22:09
Speaker 1: of the major pharmaceutical groups that's actually successfully developed a
22:13
Speaker 1: vaccine in a response to pandemic. So anything that they
22:17
Speaker 1: end up doing is worth responding or at least worth
22:20
Speaker 1: watching very closely, though they will be at least to
22:23
Speaker 1: some extent behind some of the other efforts that started sooner,
22:27
Speaker 1: of course, hopeful that that that past experience will lead
22:30
Speaker 1: them to a faster and more effective result at some point.
22:35
Speaker 1: So Max, So that's the the updil on the vaccine.
22:38
Speaker 1: How about testing, that's the more immediate issue here, Testing equipment,
22:42
Speaker 1: testing laboratories. Where are we on that? So there has
22:48
Speaker 1: been some some genuine improvement and in the last week
22:51
Speaker 1: or so in terms of the testing rate, and and
22:53
Speaker 1: we just got a plan from the Trump administration um
22:57
Speaker 1: that that should hopefully bring a little bit more of
23:00
Speaker 1: federal attention, funding and coordination to the issue. Their their
23:06
Speaker 1: goal of the Trump Ministry School is somewhat short of
23:09
Speaker 1: what some experts have called for, which is a really
23:13
Speaker 1: dramatic increase in testing such that you know, people could
23:16
Speaker 1: could be tested multiple times of months, those on the
23:20
Speaker 1: front line things like that. Um, you know, it'll take
23:22
Speaker 1: sometimes to get to the point where we have really
23:25
Speaker 1: robust diagnostic testing, let alone that sort of broader surveillance
23:30
Speaker 1: and antibody testing. But definite progress and uh, it's covered
23:34
Speaker 1: by the Trump administration should help some extent. I remember
23:37
Speaker 1: a long time ago, about I don't know, three months ago,
23:40
Speaker 1: and other diseases and other medicines were in the forefront
23:44
Speaker 1: of people's minds, in particular with cancer and the development there.
23:48
Speaker 1: And I'm wondering, you know, fives are in particular has
23:51
Speaker 1: been particularly on the front lines with new drugs to
23:55
Speaker 1: combat cancer. We got their earnings. Let's talk about some
23:59
Speaker 1: of the other things we're learning aside from the coronavirus,
24:02
Speaker 1: because life does go on another way, is too sure.
24:05
Speaker 1: So the two main things at point to from from
24:08
Speaker 1: Fiser Murk a nive artists also reported today the impact
24:13
Speaker 1: that you see in terms of their business cuts in
24:16
Speaker 1: sort of two waves. The first is that they are
24:19
Speaker 1: seeing some reduced sales for for drugs like cancer drugs
24:23
Speaker 1: they're administered in a hospital settings as people have a
24:27
Speaker 1: harder time doing that safely, does certain things you can't avoid,
24:30
Speaker 1: and so they're they're doing all right. But Murk, for example,
24:33
Speaker 1: did cut it's expected to sales because it has a
24:36
Speaker 1: high proportion of those kind of drugs. In terms of
24:38
Speaker 1: the long run, there there may be a slowdown in
24:41
Speaker 1: in various drugs development efforts because it's, as you might imagine,
24:44
Speaker 1: it really hard to run a cancer drug trial right now. UM,
24:48
Speaker 1: you're thinking about getting a lot of immuno compromise people
24:51
Speaker 1: to one place, and often to traditional clinical trial sites
24:55
Speaker 1: which are at hospitals and husion suits that are being
24:58
Speaker 1: used for other things right now. So it's it's both
25:00
Speaker 1: kind of a short term financial impact and a long
25:03
Speaker 1: term disruption of research. Um, it will be some time
25:07
Speaker 1: before we find the real extent of both of those.
25:10
Speaker 1: Companies are still being pretty cautious about making really forward
25:13
Speaker 1: looking projections given the sort of early stage of the
25:16
Speaker 1: epidemic and the recovery from it. Max, you cover all
25:20
Speaker 1: things healthcare, how come there's not a Manhattan Project equivalent
25:26
Speaker 1: for UM treatments and vaccines for this virus. So to
25:32
Speaker 1: a certain extent, there is that there is a lot
25:34
Speaker 1: of public funding being directed through organizations like set B,
25:38
Speaker 1: through through Barada UM towards supporting organizations that that are
25:43
Speaker 1: working on these treatments. I think more, very much, so
25:47
Speaker 1: more has to be done in terms of you know,
25:50
Speaker 1: doing surge funding, coordinating efforts, making sure that the best
25:54
Speaker 1: candidates get as much funding as they could possibly need,
25:57
Speaker 1: and then the most expensive problem, the one that really
26:00
Speaker 1: needs that Manhattan Project effort. Something that I know Bill
26:03
Speaker 1: Gates is devoting some attention and resources to, is when
26:06
Speaker 1: you have viable vaccine, how do you rapidly deploy it
26:10
Speaker 1: produce it at a global scale. That's something that that
26:14
Speaker 1: really hasn't been done before and is going to require
26:17
Speaker 1: an enormous amount of spending and wasteful spending in that
26:20
Speaker 1: if you wait for, um, you know, concrete proof that
26:23
Speaker 1: this is the best possible vaccine, the one that works,
26:25
Speaker 1: to even start building manufacturing, they won't even be ready
26:28
Speaker 1: nearly in times. You're gonna have to build some manufacturing
26:30
Speaker 1: that you'll never knew, never end up using. Considering that
26:33
Speaker 1: a lot of these vaccines use different and novel technology.
26:37
Speaker 1: So that's the thing where I think you can you
26:40
Speaker 1: should have a dramatic increase in funding and attention because
26:43
Speaker 1: that is a difficult, huge and thorny problem that will
26:46
Speaker 1: need to be solved in the next year or two.
26:49
Speaker 1: We're speaking with Max Nis and biotech, pharma and healthcare
26:51
Speaker 1: columnist for Bloomberg Opinion. And Max, since we have you,
26:55
Speaker 1: and since we have some time, I want to take
26:58
Speaker 1: this conversation a step further, not just as far as
27:01
Speaker 1: where we put money to develop the vaccine and to
27:04
Speaker 1: do it quickly, but the entire ecosystem of creating vaccines
27:08
Speaker 1: and these crucial medicines. And I'm struck by Joseph stigletz
27:12
Speaker 1: uh column in Project Syndicate, Nobel Prize winner economist at
27:16
Speaker 1: Columbia University, where he was saying that the entire structure
27:19
Speaker 1: of drug creation is flawed and really goes against creating
27:23
Speaker 1: some of these crucial medicines. Can you speak a little
27:25
Speaker 1: bit to that and how maybe there'll be a rethink
27:28
Speaker 1: of the incentives around creating new medicines that could potentially
27:32
Speaker 1: be beneficial going forward. Oh. Absolutely, this is a real
27:36
Speaker 1: hobby horse of mind. And the medicines that we incentivize
27:42
Speaker 1: are are the ones that are the most profitable, and
27:45
Speaker 1: often specifically the ones that are most profitable in the
27:47
Speaker 1: United States. Now, what that often means is a lot
27:50
Speaker 1: of money goes towards rare disease drugs, towards cancer drugs
27:54
Speaker 1: that are really expensive and don't get a lot of
27:57
Speaker 1: reimbursement pressure because there aren't that many people that that
28:00
Speaker 1: get any given cancer disease. What that leaves behind our
28:03
Speaker 1: our vaccines, and especially vaccines for infectious diseases, which you
28:08
Speaker 1: know by their very nature, they they often arise and
28:11
Speaker 1: in less developed countries, they arise at moments of great
28:14
Speaker 1: public health need where there's not a lot of tolerance
28:17
Speaker 1: for for high pricing. UM. And then when you point
28:19
Speaker 1: to another potential source of future pandemics UM antibiotic resistant bacteria.
28:25
Speaker 1: The incentive if you actually develop a good UM, a
28:28
Speaker 1: good medicine for those is to use it as little
28:31
Speaker 1: as possible. So UM, you know, the pricing, the things
28:35
Speaker 1: that we we tend to value and pay money for
28:38
Speaker 1: are not the ones that we want to most incentivize.
28:40
Speaker 1: I very much hope that we can begin to build
28:43
Speaker 1: different incentives so there's not just uh an incentive to
28:47
Speaker 1: to kind of jump in when there's a crisis, but
28:50
Speaker 1: to develop the sort of long term pipelines and technology
28:53
Speaker 1: that that will help when when the next crisis runs
28:56
Speaker 1: around us to be more prepared at a global level.
29:00
Speaker 1: So Max, just I know you talked to lots of
29:02
Speaker 1: different people within the health spare, healthcare space, scientists and
29:05
Speaker 1: and doctors and so on. You know, I guess one
29:07
Speaker 1: thing to me is a lay person here. This is
29:10
Speaker 1: a virus. It's similar to other coronaviruses, maybe even the
29:14
Speaker 1: common cold, maybe the flu. It doesn't appear from that
29:18
Speaker 1: perspective that we have to literally start from ground zero
29:22
Speaker 1: and have these biotech companies, these farmers companies saying they
29:25
Speaker 1: just you know, it's going to take a lot of
29:27
Speaker 1: time like any other new drug. Again, am I reading
29:30
Speaker 1: that wrong? Is this so different that most of these
29:33
Speaker 1: scientists really are starting from ground zero? So you know,
29:37
Speaker 1: this is actually kind of getting back to incentives. You know,
29:41
Speaker 1: the closest cousin that we know about to this coronavirus
29:45
Speaker 1: is Stars, and there were Nasson efforts developed a vaccine,
29:49
Speaker 1: but since that outbreak peter out, there was no financial
29:54
Speaker 1: motivation to keep developing in and because we don't have
29:57
Speaker 1: well developed incentive structures or or long term financing structures
30:01
Speaker 1: for developing vaccines that don't have a profitable economic future, uh,
30:07
Speaker 1: those vaccines stopped getting developed. So we didn't make a
30:10
Speaker 1: lot of the discoveries about coronaviruses that might help this
30:14
Speaker 1: time around. Um, you know, there there are some vaccines
30:17
Speaker 1: for animal coronaviruses, but none of them are are especially effective.
30:20
Speaker 1: It just all comes down to the fact that making
30:23
Speaker 1: vaccines is incredibly difficult, and making a vaccine for a
30:27
Speaker 1: comparatively new and poorly understood virus, even though it's related
30:32
Speaker 1: to ones we know, it still does take a lot
30:34
Speaker 1: of work from scratch to develop a long lasting and
30:38
Speaker 1: in robust immune response. That's just a fundamentally difficult scientific
30:41
Speaker 1: problem and one that well, there have been you know,
30:44
Speaker 1: real recent advances, there's still a lot that we're learning
30:47
Speaker 1: on the fly. The most advanced candidate, or one of
30:50
Speaker 1: is what's called an m R and a vaccine. The
30:53
Speaker 1: good nice part about it is that it's very adaptable.
30:55
Speaker 1: It's something that can be produced quickly in response to
30:58
Speaker 1: a new pathogen. We we don't know and we're going
31:01
Speaker 1: to kind of have to find out on the fly
31:04
Speaker 1: is whether it's safe, reliable, and effective and beyond that
31:08
Speaker 1: able to be produced on a mass scale. So it
31:11
Speaker 1: really is unfortunately a lot of work that does have
31:13
Speaker 1: to be done from scratch, both drough to you know,
31:16
Speaker 1: bad incentives, under investment and sometimes the wrong priorities and
31:20
Speaker 1: any where we spend money. In the meantime, there's another
31:23
Speaker 1: kind of immunity, heart immunity that could be created by
31:26
Speaker 1: people getting the virus potentially we don't know, and not
31:30
Speaker 1: being able to get it. Maybe again, we aren't sure.
31:33
Speaker 1: W h O has put something out saying that there's
31:34
Speaker 1: no evidence showing that you do get immunity to the
31:37
Speaker 1: virus once you already have it and developed the anybodies.
31:39
Speaker 1: But there is a question of how much of the
31:42
Speaker 1: population and the hardest hit area in in the United States,
31:46
Speaker 1: how much of the population has been exposed and there
31:48
Speaker 1: have been studies. Is this right that there about of
31:51
Speaker 1: the population has already been exposed max. So that that's
31:56
Speaker 1: one study and fundamentally that's an extra lation from a
32:00
Speaker 1: limited sample size based on a test of unknown specificity test. Yeah,
32:10
Speaker 1: you know so, I I wouldn't be surprised if the
32:12
Speaker 1: final answer, once we have more data from a series
32:16
Speaker 1: of reliable tests, isn't too far off from there. But um,
32:20
Speaker 1: it may be that that it is substantially less than
32:22
Speaker 1: that once we get a sample size that better represents
32:26
Speaker 1: the broader population and a more reliable test. And then
32:30
Speaker 1: on the question of of herd immunity. Um, that that's
32:32
Speaker 1: one where we don't just need to you know, this
32:35
Speaker 1: one round of testing. We need to do that test
32:37
Speaker 1: and then follow people for months in order to get
32:40
Speaker 1: a sense of whether reinfection is possible and who might
32:44
Speaker 1: be vulnerable. UM. You know that those common coronavirus is
32:48
Speaker 1: those seasonal ones we mentioned before. People lose immunity inside
32:51
Speaker 1: a year. That's why they come back seasonally. UM, if
32:55
Speaker 1: that's the case for for this virus, then if we
32:58
Speaker 1: reopen and cautiously, if we we aren't Julian, and we
33:00
Speaker 1: may see you know, really robust seasonal reoccurrence. And that's
33:04
Speaker 1: something that we really need to understand and that should
33:07
Speaker 1: inform the sort of ongoing response for not just you know,
33:11
Speaker 1: the next few months, but for years of it. Max Neeson,
33:14
Speaker 1: thank you so much for taking all this time with us.
33:16
Speaker 1: Max Neison, biotech, pharma and healthcare calumnist with Bloomberg Opinion,
33:21
Speaker 1: joining us on the phone from New York. Thanks for
33:25
Speaker 1: listening to the Bloomberg PANL podcast. You can subscribe and
33:28
Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
33:31
Speaker 1: you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney.
33:34
Speaker 1: I'm Lisa abram Boy. It's I'm on Twitter at Lisa
33:36
Speaker 1: abram Woit's one before the podcast. You can always catch
33:39
Speaker 1: us worldwide. I'm Bloomberg Radio.