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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Abramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well,

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Speaker 1: today we got housing starts data that was kind of mixed. Frankly,

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Speaker 1: we saw an increase in the number of housing starts

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Speaker 1: UH to housing starts the fast pace in about decade,

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Speaker 1: but the number of applications for permits declined. Joining us

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Speaker 1: now to talk about the state of the US housing

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Speaker 1: market is Aaron Terrazas. He is a Zillo Xenior Senior

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Speaker 1: Economist Zillo Senior Economists. UM, thank you so much for

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Speaker 1: being here. Aaron, So, whoops your take on this sort

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Speaker 1: of mixed data. You're right, it was a mixed report,

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Speaker 1: but I think there was good news and that we

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Speaker 1: are seeing a single family starts steadily rebound. There there

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Speaker 1: nowhere near what we would expect at this point in

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Speaker 1: the business cycle. Multi family starts have actually been a

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Speaker 1: bright spot. Um. Those apartments five plus unit buildings UM.

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Speaker 1: They dropped a little bit in twenty seventeen, but have

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Speaker 1: been up over the past year unexpectedly, still strong. What

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Speaker 1: accounts for that strength up seven and a half percent?

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Speaker 1: That's right, you know, I think there's a couple of

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Speaker 1: factors driving that strength UM. First, as rent affordability really

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Speaker 1: began to deteriorate two or three years ago, UH cities,

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Speaker 1: particularly high press high price cities, began to invest in

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Speaker 1: easing the regulatory process UM, and now to three years later,

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Speaker 1: we're starting to see the fruit of that kind of

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Speaker 1: regulatory easing. Really, although I thought that the big gains

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Speaker 1: were really in the Midwest and some cities where perhaps

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Speaker 1: that wasn't as much of an issue. You're right, So

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Speaker 1: so the Midwest has seen the most recent month and

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Speaker 1: month gains, but you're looking over the past year, kind

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Speaker 1: of the West and the Northeast have still seen strong

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Speaker 1: multifamily starts. Have you seen any effects because of the

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Speaker 1: rise and lumber prices, tariffs on imported lumber from Canada,

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Speaker 1: for example, You're right. In the single family space, the

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Speaker 1: single family construction in particular, tariffs and and kind of

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Speaker 1: recent trade actions have increased costs for builders. I heard

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Speaker 1: an estimate of about nine thousand dollars at home, right,

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Speaker 1: so that's kind of in line my estimates attend to

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Speaker 1: fifteen tho dollars for your median new home. UM. That adds,

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Speaker 1: but it's important remember it's not just softwood. Softwood is

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Speaker 1: the biggest particular component that's been tariffed, but things like cedar,

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Speaker 1: shingles um have also kind of received teriffs. UM, Things

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Speaker 1: like aluminum and and still are about three percent of

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Speaker 1: the diciplical costs of your single family home, not too

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Speaker 1: much of consumer appliances like washing machines and dishwashers. So,

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Speaker 1: you know, just to pick up on on that that

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Speaker 1: important point. The cost of the actual materials has been increasing,

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Speaker 1: but so have the costs of the labor because there's

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Speaker 1: been a real shortage there. How much has that contributed

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Speaker 1: to an increase in home prices as well? You're right

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Speaker 1: number two of the rising cost the headwinds and builders

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Speaker 1: are facing. Residential construction wages are up five percent over

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Speaker 1: the past year compared to a liver two percent for

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Speaker 1: overall wages. We're seeing double the pace of wage growth

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Speaker 1: in in kind of for those residential construction workers. That's

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Speaker 1: a clear sign of any that that builders are facing

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Speaker 1: labor shortages. So at what point will these increased costs

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Speaker 1: materially slow housing starts. I'm not sure they're gonna they're

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Speaker 1: slow housing starts. What they are doing is they're pushing

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Speaker 1: up UM, the price point that that builders are targeting.

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Speaker 1: So you know, we are seeing that that median price

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Speaker 1: point of new construction rise UM and UM and you know,

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Speaker 1: and kind of a little bit of is that is

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Speaker 1: what we're not seeing I said before at this point

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Speaker 1: in the business cycle, we should be seeing more housing starts. Okay,

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Speaker 1: this is what confuses me. The biggest earth of housing

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Speaker 1: right now is sort of smaller starter homes. It's the

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Speaker 1: affordable homes that people want to buy. If you have

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Speaker 1: builders basically having a disincentive to go out and buy

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Speaker 1: and and create these homes, you know, is there enough

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Speaker 1: of a market at the high end, first of all,

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Speaker 1: to absorb what the builders want to build and can

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Speaker 1: they afford to build what is actually needed? I think

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Speaker 1: builders builders have that that same concern that that's one

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Speaker 1: of the reasons there the remaining cautious If you look

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Speaker 1: at UM new home sales, about a third of new

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Speaker 1: homes are sold before they even started. That's up from

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Speaker 1: historically about means builders are offloading this risk that they're

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Speaker 1: carrying UM rather than wait for a couple of months

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Speaker 1: of appreciation while construction finishes. I think kind of builders

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Speaker 1: today are do have that scars of what happened a

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Speaker 1: decade ago and are being conservative UM, not wanting to

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Speaker 1: overbuild UM. They know there's demand at that more affordable

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Speaker 1: price point. The math doesn't work out for them there

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Speaker 1: new home sales. Just to get more color on that topic,

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Speaker 1: what's your outlook? So our outlook new home sales data

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Speaker 1: will release next week. Are our forecast suggests? I think

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Speaker 1: a small decline. You know there is some month to

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Speaker 1: month volatility in that series. I think the more important

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Speaker 1: point that I'm looking at um next week next week's

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Speaker 1: data is that that medium price point. Last month in

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Speaker 1: the provisional April data, we saw a big drop in

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Speaker 1: that medium price point. I think that's gonna be revised upward.

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Speaker 1: One thing that really struck me there was a story

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Speaker 1: on the Bloomberg Today looking at a Harvard study that

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Speaker 1: found that US homes are a lot cheaper than they look.

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Speaker 1: And they looked at an inflation adjusted basis, The monthly

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Speaker 1: payments that people are making now in their homes are

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Speaker 1: actually blow what they would be in seven This is

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Speaker 1: all thanks to low interest rates. So you know how

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Speaker 1: much does that factor into people's equations right now? Lock

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Speaker 1: in the low interest rates while they are where they are,

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Speaker 1: and that will actually mean a cheaper home now, even

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Speaker 1: if prices are pretty high. Nation Wide, home affordability looks

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Speaker 1: great right now. You know it's it's in the low twenties.

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Speaker 1: Your your your your typical mortgaged income ratio. So much

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Speaker 1: of that is driven by interest rates. As interest rates rise,

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Speaker 1: that's gonna kind of push that in abruptard. But you know,

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Speaker 1: if you look at that historical average share of income

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Speaker 1: that goes to a mortgage, that's that's assuming an average

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Speaker 1: historical mortgage rate of eight percent. I'm not sure that

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Speaker 1: mortgage rates are going to get up to eight percent,

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Speaker 1: even at their highest point the cycle. Just to go

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Speaker 1: back to this idea of rent affordability, looking at specific

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Speaker 1: cities where it is affordable to rent, Pittsburgh number one. St. Louis,

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Speaker 1: number two, Oklahoma City, followed by Raleigh, Birmingham, and so on.

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Speaker 1: What do you see in terms of any trends for

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Speaker 1: big cities. Yeah, so so. Rent affordability is almost the

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Speaker 1: opposite of the mortgage affordability story. It is at historic

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Speaker 1: highs um particularly in in those high priced cities. In

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Speaker 1: a place like San Francisco, l A. People are spending

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Speaker 1: kind of almost fifty of their income on rent. That's

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Speaker 1: at the median for a bottom a bottom third renter,

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Speaker 1: kind of renting a bottom foot house. It's it's which

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Speaker 1: is just just not realistic, But you're right. Kind of

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Speaker 1: there are kind of those more affordable cities, um where

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Speaker 1: there has been more supply and you know, more importantly

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Speaker 1: kind of less demanding that rental market because it is

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Speaker 1: still affordable to buy in places like like Lahoma City. Um,

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Speaker 1: you know, people in those markets tend to buy as

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Speaker 1: soon as they can. Thanks very much for being with us.

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Speaker 1: Aaron Rossis, he is the senior economist for ZELLO, talking

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Speaker 1: about new housing starts and the housing market. China is

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Speaker 1: planning to act quote forcefully on Trump's two hundred billion

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Speaker 1: dollar tariff threat. President Trump's administration is drawing up a

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Speaker 1: list of perhaps new tariffs to impose on China to

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Speaker 1: retaliate for the retaliation to the retaliation to the retaliation.

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Speaker 1: Here we are in this cycle, and here to explain

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Speaker 1: to us how to strip out what we should be

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Speaker 1: paying attention to from the noise. Patrick Chauvinik Chavannic. He

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Speaker 1: is chief strategist of Silver Silver Crust Asset Management. Patrick,

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Speaker 1: you know, when you talk to a lot of traders,

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Speaker 1: they say, there's a lot of noise, there's a lot

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Speaker 1: of threats, but the actual economic impact so far is

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Speaker 1: fairly minimal. At what point should people take up their

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Speaker 1: their pens and say, wait a seconds, something here is

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Speaker 1: vastly different. So there is a steady march from words

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Speaker 1: to actions, and we are starting to see more and

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Speaker 1: more of these words translated into actions. Um, it's incremental,

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Speaker 1: You're right, Um, but UH, you know, I look at it.

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Speaker 1: There there two sets of effects. There's the short term

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Speaker 1: effects UM that may affect uh this market cycle or

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Speaker 1: how stocks perform in the near future, and that is

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Speaker 1: UH the potential impact of of inflationary shock from more

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Speaker 1: expensive inputs like from steel. UH. And then also the

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Speaker 1: retaliatory impacts measures that are meant to target specific companies

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Speaker 1: or specific industries in the United States and hit their earnings.

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Speaker 1: But there's also a longer term impact, which is the

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Speaker 1: erosion and the undermining of these trade rules, which, however

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Speaker 1: imperfect that they may be, have created a lot of opportunity,

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Speaker 1: not just for American companies but from for companies around

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Speaker 1: the world. And you know, there's something going on right

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Speaker 1: now at w t O where the United States is

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Speaker 1: refusing to allow new judges to take up their roles

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Speaker 1: at w t O, and very soon we're gonna get

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Speaker 1: down to where there's only three judges, which is the

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Speaker 1: minimum required um to have any kind of ruling, and

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Speaker 1: then we'll go to two and they won't be able

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Speaker 1: to rule on anything. So you have countries like Canada

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Speaker 1: or your European Union who say, well, we don't like

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Speaker 1: what the U s is doing, we're gonna take it

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Speaker 1: to w t OH. If they can't take it to

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Speaker 1: w t O because the US is blocking that, they're

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Speaker 1: going to be adopting more unilateral actions. And this what

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Speaker 1: we're seeing here is a situation where the temperature just

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Speaker 1: keeps rising and rising and rising, and the actual economic

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Speaker 1: impacts start to accumulate. Patrick. Let's say you get a

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Speaker 1: call from a client and they say, look, you know

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Speaker 1: you taught at a university in Beijing, shin Khua University. Also,

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Speaker 1: you've worked in private equity. You worked for John Bayner

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Speaker 1: because you've got a political acumen there, and you also

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Speaker 1: have worked in public policy. Where do we put our

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Speaker 1: money today? How can we take advantage of people following

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Speaker 1: headlines going in one direction? Maybe that's a head fake.

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Speaker 1: Let's assume that that's how we see it. Where do

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Speaker 1: you put your money? If you bet that the demographics

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Speaker 1: of emerging markets, particularly in Asia can be your friend. Okay, well,

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Speaker 1: you raise a bigger question about sort of globally, you

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Speaker 1: know where growth is going to come from. Let me

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Speaker 1: let me answer the immediate question that that people are

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Speaker 1: asking me about about all this kind of trade headlines.

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Speaker 1: And the thing that I've been saying is, look, there

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Speaker 1: are there We're already seeing in markets, um a disparity

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Speaker 1: and performance between the smaller caps and more technology focus

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Speaker 1: firms which are not exposed to uh these sort of

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Speaker 1: trade disputes, and the larger caps. Many people ask me,

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Speaker 1: they say, when is when are these trade issues going

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Speaker 1: to start affecting the markets? I'd say they've affected the

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Speaker 1: markets throughout the year. We've had excellent economic numbers. Um,

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Speaker 1: we had a great earning season. In the first quarter,

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Speaker 1: we had six in May we had retail sales were

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Speaker 1: up six percent year on year. And and in the

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Speaker 1: face of all this though, we've got flat markets, particularly

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Speaker 1: in large caps. So you're making the argument of small

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Speaker 1: caps versus large caps, and the small caps have outperformed

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Speaker 1: by more than twice the large caps. The question is,

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Speaker 1: and a lot of people will argue this is uh messy,

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Speaker 1: a messy analogy, and that you know, small caps will

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Speaker 1: eventually feel the brunt of any economic downdraft that the

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Speaker 1: large caps are reflecting. Yes, so, so there are the

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Speaker 1: broader concerns that you know, if we have inflationary pressure rising,

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Speaker 1: if we have retaliation that doesn't just target a few

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Speaker 1: companies that actually has a broader economic impact, everyone's going

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Speaker 1: to feel that. But for the moment, right there is

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Speaker 1: that disparity between We can't ignore the good economic news.

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Speaker 1: I mean, I'm as alarmed at the headlines and the

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Speaker 1: potential impact that they might have as anyone else, But

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Speaker 1: I also look at numbers that the market on a

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Speaker 1: bad day like this tends to ignore, which is that

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Speaker 1: retail sales up six per year on year expectations of

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Speaker 1: three to anywhere from three to five GDP growth in

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Speaker 1: the second quarter, and you can't ignore that either. So

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Speaker 1: where are you going to pick up? Where are you

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Speaker 1: going to maximize your exposure to that good news and

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Speaker 1: minimize your exposure your to those potential risks. So you're

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Speaker 1: buying small caps on a day like today, Uh? I

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Speaker 1: would I mean, we manage whole portfolios. So what I

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Speaker 1: would say is you want to have that in mind

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Speaker 1: when you're thinking about your asset allocation. All right, I

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Speaker 1: do want to get a sense of your take on

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Speaker 1: China strategy here, giving your intimate knowledge with the Chinese

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Speaker 1: government and how they approach things, it seems as if

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Speaker 1: there is a very deliberate targeting of areas that voted

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Speaker 1: for President Trump. This is the sort of farm belt, uh,

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Speaker 1: and sort of the steel country. This is where you're

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Speaker 1: seeing the tariffs. Put first, Does this matter to markets

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Speaker 1: or in other words, this definitely has sort of political

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Speaker 1: overtones with respect to what the midterm elections might look like.

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Speaker 1: If China is effective, does it? Do you care from

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Speaker 1: a market perspective? Sure, because you know it's it's not

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Speaker 1: a stock market, it's a market of stocks, and so

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Speaker 1: you want to be aware that these retaliatory measures are

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Speaker 1: going to be targeted at specific company some specific industries.

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Speaker 1: And it's not just China, by the way, uh it

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Speaker 1: is also the EU, Canada, Mexico. They're all crafting their

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Speaker 1: retaliatory strategies to try to maximize the political lever. So,

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Speaker 1: for instance, Mexico is putting a big tariff on cheese

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Speaker 1: exports from the United States, about four million dollars worth.

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Speaker 1: So if you're an investor, you have to, you know,

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Speaker 1: go bullow this. We're not passive investors, were active investors,

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Speaker 1: So we're not looking at the index. We're not just

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Speaker 1: looking at how the market overall is doing. We want

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Speaker 1: to go and look at specific companies, specific industries and

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Speaker 1: what their exposure is to these kinds of risks. Give

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Speaker 1: you twenty seconds, if you could get on a plane

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Speaker 1: and go anywhere to go investigate a potential investment in

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Speaker 1: an emerging economy, where would it be? I go everywhere

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Speaker 1: all the time. I just got you get to go

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Speaker 1: once in Europe, Eastern Europe. Most most interesting me. That

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Speaker 1: doesn't mean that I'm bullish on it. I just it's

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Speaker 1: I'm most curious about it all right, Well done, thanks

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Speaker 1: very much for being with us. UH. Patrick Chavannic. He

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Speaker 1: is managing Director, Chief a Strategist of Silvercrest Asset Management

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Speaker 1: and you can follow him on Twitter at p R Shelvanic.

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Speaker 1: That's h O V A n EC Right now. I

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Speaker 1: am very excited that we have David Carrington with us.

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Speaker 1: He is Jefferson County Commissioner UH and he joins us

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Speaker 1: here in our eleven three oh studios. David, I want

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Speaker 1: to start with a little trip down memory lane. Jefferson

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Speaker 1: County is known in the bond world for its two

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Speaker 1: thousand and eleven bankruptcy, one of the biggest in the

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Speaker 1: minicipal bond markets history in the US. I'm wonder rink

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Speaker 1: today as we see some of the struggles with Illinois

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Speaker 1: and Connecticut, would you recommend that they go down the

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Speaker 1: same path that Jefferson County ultimately had to pursue. Well,

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Speaker 1: it's surely a last resort. It's not something that you

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Speaker 1: want to do flippantly. UM. I continue to say that

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Speaker 1: after a year in negotiations, we had three gallons of

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Speaker 1: water and a one gallon bucket, and it didn't look

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Speaker 1: like we were going to go a larger bucket, and

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Speaker 1: we couldn't reduce the water, so we had to do it. UM.

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Speaker 1: The financial situation was one that was apparently unsolvable. With

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Speaker 1: that said, before I municipality entertains Chapter nine bankruptcy, they

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Speaker 1: have to first seriously try to negotiate their way out.

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Speaker 1: They need to recognize it's very costly. In our case,

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Speaker 1: it was a million dollars a month. We were projecting

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Speaker 1: thirty six to forty eight months. It actually we were

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Speaker 1: able to exit in twenty five months. You have to

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Speaker 1: be sure that the elected officials have the political will

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Speaker 1: to make the decisions that have to be made in

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Speaker 1: order to restructure UM the organization, and so UM I

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Speaker 1: would not recommend a community do this unless they have

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Speaker 1: an elected UH a group of commissioners or counselors or

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Speaker 1: senators that are willing to take the political heat. I

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Speaker 1: was told UH that if I UH file for Chapter

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Speaker 1: nine bankruptcy, my political career would be toast. And my

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Speaker 1: answer to that was, I didn't run to get re elected.

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Speaker 1: I ran to fix the problem. So you almost have

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Speaker 1: to have a mindset that this is UH something that

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Speaker 1: you don't want to do, but you have to do

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Speaker 1: in order to make the community sustainable going forward, and

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Speaker 1: just a quickly side of recap. In Jefferson County, Alabama,

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Speaker 1: this goes back to there was a consent decree having

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Speaker 1: to do with the city sewer systems. They needed to

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Speaker 1: finance the revamp of the sewer system. They issued. Then

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Speaker 1: it got really bad and there were lawsuits and several

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Speaker 1: people went to jail, and it was none of which

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Speaker 1: you are associated. And that's that's true. The day I

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Speaker 1: walked in the office was November the tenth of two ten.

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Speaker 1: We had three point two billion of sewer deet in default.

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Speaker 1: We had a sewer receiver appointed by the court, so

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Speaker 1: that was gonna double rates and then double them again

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Speaker 1: or g that was in default. Our audits were three

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Speaker 1: years past due. We had an indigent care hospital losing

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Speaker 1: ten to fifteen million dollars a year, a county home

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Speaker 1: losing two to three million dollars a year. So to

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Speaker 1: say it was a mass is sort of an understatement.

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Speaker 1: And uh then on our twenty second day in office,

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Speaker 1: a circuit court judge ruled that a tax that had

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Speaker 1: been passed for the county's general fund was passed illegally

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Speaker 1: by the state legislature, and we lost twenty of our revenue.

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Speaker 1: So that was our twenty second day. And then on

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Speaker 1: the last day of our first year in office, we

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Speaker 1: followed what was at the time the largest municipal bankruptcy

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Speaker 1: in US history. A year or two later, Detroit rallied

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Speaker 1: and surpassed us. And I've always been thankful for Detroit

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Speaker 1: for doing that. I'm sure that UH Detroit says you're welcome.

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Speaker 1: I want to switch gears a little bit because fast

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Speaker 1: forwards today and Birmingham is actually attracting some businesses from

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Speaker 1: places like New York and UH, New Jersey and Connecticut

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Speaker 1: and higher tax states. Um, to what degree have you

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Speaker 1: seen these businesses come? And UH, you know, are you

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Speaker 1: seeing it accelerate? Yes? Uh in the last seventeen months,

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Speaker 1: uh one to three, four or five, six, seven, eight nine, Well,

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Speaker 1: there's been eleven companies relocate into our community. And of

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Speaker 1: course the states doing well too, with the recent announcement

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Speaker 1: of Toyota in the Huntsville area. We have Airbus in

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Speaker 1: the last several years in Mobile, UH the Birmingham metro

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Speaker 1: area actually, in a recent Forbes report, UH has pays

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Speaker 1: the highest salaries in the guide states. Well might shock

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Speaker 1: people in New York, but when you combine our salary

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Speaker 1: plus our cost of a living, the dollar buys a

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Speaker 1: lot more in Alabama. And so we're a low tax

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Speaker 1: state with a high work ethic, and we have not

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Speaker 1: suffered as we were suggested with the bankruptcy. We now

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Speaker 1: have investment grade ratings on our GEO debt UH, and

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Speaker 1: we were told that would never happen. We just refunded

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Speaker 1: some debt in the last week last month at two

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Speaker 1: point five saving the citizens fourteen million dollars. And we

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Speaker 1: have redeployed that capital because we have a thousand fewer

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Speaker 1: employees today than the day I walked into the office,

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Speaker 1: so our expense structure is a lot lower. We've allocated

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Speaker 1: twenty five million dollars a year for infrastructure so we

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Speaker 1: can attract it, eighteen million dollars a year more for

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Speaker 1: our public schools, and ten million dollars a year UH

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Speaker 1: for economic development. So on top of tax in centers

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Speaker 1: which most people used to recruit businesses, we also have

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Speaker 1: a bundle of catsh that we can invest. We just

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Speaker 1: UH opened a truck manufacturer. It's a custom truck UH

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Speaker 1: seven fifty jobs and we needed about a million and

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Speaker 1: a half dollars for some infrastructure work. So instead of

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Speaker 1: borrowing the money, we now have a pool of assets

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Speaker 1: that we can use to do that. Like I said,

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Speaker 1: it's ten million dollars a year. It's a twenty five

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Speaker 1: twenty five year attack. So we've got a quarter of

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Speaker 1: a billion dollars to recruit and when we need a

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Speaker 1: little bit more, be it for a road or a bridge,

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Speaker 1: we can do that. Thank you very much for being

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Speaker 1: with us. Looking forward to having you again on the program.

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Speaker 1: Very interesting topics and thanks for your participation. David Carrington,

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Speaker 1: Commissioner of Jefferson County, Alabama. Rebates and drug Pricing. Here

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Speaker 1: to tell us more about the industry is Michael Ray.

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Speaker 1: He is the chief executive officer of our X Savings Solutions.

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Speaker 1: They're based in Overland Park, Kansas, but he joins us

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Speaker 1: here in our eleven three OHD studios. Michael, always a pleasure,

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Speaker 1: thanks for being here. Explained to people that may not

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Speaker 1: be familiar with the use of rebates when it comes

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Speaker 1: to purchasing drugs and how it has changed. Yeah, so

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Speaker 1: rebates kind of think of them like a kickback of sorts.

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Speaker 1: You pay a hundred dollars for the drug. Uh, the

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Speaker 1: negotiated price might be eighty uh, and there might be

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Speaker 1: a twenty twenty rebate on top of it, so that

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Speaker 1: the actual total costs in that scenario is is sixty dollars.

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Speaker 1: It's kind of this, uh, like I said, kickback of

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Speaker 1: sorts that that goes back to a pair. Why does

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Speaker 1: this exist? That's a great question. We live in a

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Speaker 1: very complicated world when it comes to drug pricing, and

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Speaker 1: the mechanics of how money moves has gotten more complex

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Speaker 1: over time. It originally, uh, you know, was a way

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Speaker 1: to give an additional discount to the payer, but what's

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Speaker 1: happened is it's been manipulated over time and profits have

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Speaker 1: have gone up extraordinarily for certain folks in the supply chain. Well,

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Speaker 1: we certainly, Uh. One of the reasons why we've been

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Speaker 1: paying closer and closer attention to this is because it's

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Speaker 1: become a political issue. And then the administration has said

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Speaker 1: we're going to reduce drug prices, and in response, some

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Speaker 1: of the shares of these big pharmaceutical companies declined. What

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Speaker 1: is the latest with respect to the administration's policy to

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Speaker 1: try to lower drug policy prices? Yeah, I haven't seen anything,

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Speaker 1: you know, really interesting since the you know, the announcement

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Speaker 1: by President Trump probably four weeks or so ago. I

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Speaker 1: did hear some or excuse me, see some testimony from

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Speaker 1: Secretary is Our last week that was focused on getting

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Speaker 1: rid of rebates. And I think if there is a

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Speaker 1: single thing that can happen to lower drug prices, elimination

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Speaker 1: of rebates is that thing. It is that important. And

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Speaker 1: there is a tremendous amount of money changing hands. So

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Speaker 1: just how much would that hurt pharmaceutical companies? I mean,

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Speaker 1: clearly they're I'm assuming they're the ones that are pushing

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Speaker 1: to keep these rebates correct. Yeah, you know, I actually

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Speaker 1: think that that pharma could come out better off if

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Speaker 1: these rebates go away. I actually, uh am of the

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Speaker 1: belief that they should be the ones proposing this. They

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Speaker 1: should be uh they should join together as a trade

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Speaker 1: group and say we're not going to participate because the benefit,

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Speaker 1: financial benefit that they received at the beginning has been

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Speaker 1: taken away. And I actually think that more competition would

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Speaker 1: would yield a better result. Can you give us an

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Speaker 1: update on what is going on with generic drug pricing?

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Speaker 1: Because there was a list that the FDA put out

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Speaker 1: that side of a variety of pharmaceutical companies saying that

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Speaker 1: they were doing just about anything they could in order

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Speaker 1: to avoid giving the information necessary to other companies to

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Speaker 1: produce generic versions of their patented or their branded drugs.

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Speaker 1: And yet it seems as though generic drug prices have

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Speaker 1: been increasing, not decreasing. It's a it's a tail to

431
00:25:16,440 --> 00:25:20,360
Speaker 1: two situations. You've got you've got some pharma companies blocking,

432
00:25:20,840 --> 00:25:22,480
Speaker 1: like you said on the on the patent piece, so

433
00:25:22,600 --> 00:25:25,840
Speaker 1: that generics cannot be made, the first generic cannot be made.

434
00:25:26,520 --> 00:25:28,280
Speaker 1: And then you've got other products in the market where

435
00:25:28,720 --> 00:25:32,280
Speaker 1: you know, a hundred ten different manufacturers make a specific

436
00:25:32,359 --> 00:25:36,520
Speaker 1: generic drug. In those situations, you're seeing more and more

437
00:25:36,880 --> 00:25:40,240
Speaker 1: you're seeing consumer prices go up, but generic drug maker

438
00:25:40,280 --> 00:25:43,879
Speaker 1: stock prices go down, and there's this mysterious pot of

439
00:25:43,960 --> 00:25:45,960
Speaker 1: money in the middle that no one seems to know

440
00:25:46,040 --> 00:25:50,359
Speaker 1: where it goes. So you know, lower lower, lower stock prices,

441
00:25:50,400 --> 00:25:54,360
Speaker 1: lower profits, but higher cost to the consumer. So I'm wondering,

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00:25:54,560 --> 00:25:58,119
Speaker 1: especially given some of the focus on generic drug prices

443
00:25:58,200 --> 00:26:00,639
Speaker 1: and how they've been going up, I'm wondering this year's

444
00:26:00,960 --> 00:26:04,040
Speaker 1: record pace of pharmaceutical mergers and acquisitions is going to

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00:26:04,080 --> 00:26:05,800
Speaker 1: play into drug pricing. I mean, is this going to

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00:26:05,920 --> 00:26:09,720
Speaker 1: end up uh leading to more price increases because you're

447
00:26:09,720 --> 00:26:13,200
Speaker 1: getting consolidation of specifical sectors of the industry or do

448
00:26:13,280 --> 00:26:17,119
Speaker 1: you think that it might absolutely? Um, depending on the

449
00:26:17,240 --> 00:26:20,840
Speaker 1: products right. So um, you know, if there's three or

450
00:26:20,880 --> 00:26:24,240
Speaker 1: more competitors in a class, you're gonna get you know,

451
00:26:24,280 --> 00:26:28,120
Speaker 1: you're gonna get a pretty efficient market. If you've got

452
00:26:28,320 --> 00:26:32,000
Speaker 1: manufacturers emerging that you know, have the two products on

453
00:26:32,080 --> 00:26:34,919
Speaker 1: the market and they emerge into be the single single company,

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00:26:35,480 --> 00:26:37,520
Speaker 1: that's not going to bode well for payers and consumers

455
00:26:37,520 --> 00:26:39,920
Speaker 1: in this country. Are there specific drugs that you're starting

456
00:26:39,960 --> 00:26:45,000
Speaker 1: to see inch up in price because of consolidations? Nothing yet?

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00:26:45,560 --> 00:26:48,680
Speaker 1: And I just just only because I have attracted you know,

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00:26:49,000 --> 00:26:51,720
Speaker 1: uh in looking at what you're doing at r X

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00:26:52,280 --> 00:26:55,240
Speaker 1: Saving Solutions, I'm wondering if you just give us an example.

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00:26:56,040 --> 00:26:58,679
Speaker 1: I know, for example, you work with the State of Kansas.

461
00:26:58,720 --> 00:27:01,879
Speaker 1: They've got their employee health benefits plan. What do you

462
00:27:02,000 --> 00:27:04,639
Speaker 1: do for them? And what has been the result? What

463
00:27:04,840 --> 00:27:07,800
Speaker 1: why are they using you? Yeah? So um, you know,

464
00:27:07,880 --> 00:27:09,440
Speaker 1: to give you a kind of an example, think of

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00:27:09,520 --> 00:27:12,960
Speaker 1: a patient with high blood pressure and they go into

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00:27:13,000 --> 00:27:15,919
Speaker 1: the doctor. The doctor diagnoses it and says, we need

467
00:27:15,960 --> 00:27:19,320
Speaker 1: to put you on this therapy um right now. They're

468
00:27:19,400 --> 00:27:21,360
Speaker 1: choosing and they're kind of shooting in the dark. It's

469
00:27:21,520 --> 00:27:23,760
Speaker 1: you know, there's forty choices, and they pick one, and

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00:27:23,760 --> 00:27:25,159
Speaker 1: they don't know if that's a high cost one or

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00:27:25,160 --> 00:27:27,760
Speaker 1: a low cost one. What we do is present all

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00:27:27,800 --> 00:27:30,880
Speaker 1: of the information to the consumer and the doctor to say,

473
00:27:30,920 --> 00:27:33,680
Speaker 1: here are your forty choices, and here's every price that

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00:27:33,760 --> 00:27:37,880
Speaker 1: goes with it. That allows a consumeristic decision to be made,

475
00:27:38,240 --> 00:27:40,679
Speaker 1: and it allows a consumer to take hold and consume

476
00:27:40,760 --> 00:27:43,240
Speaker 1: a real efficient market to take hold and drive down

477
00:27:43,359 --> 00:27:46,399
Speaker 1: costs while increasing outcomes because that patient actually has a

478
00:27:46,440 --> 00:27:48,480
Speaker 1: drug they can afford and they can fill and they

479
00:27:48,520 --> 00:27:51,480
Speaker 1: get healthier. So they brought us into lower prices and

480
00:27:51,520 --> 00:27:53,719
Speaker 1: that's what we've done for them. Thank you so much

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00:27:53,760 --> 00:27:56,199
Speaker 1: for joining us. Always eliminated to speak with you. Michael Ray,

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00:27:56,480 --> 00:28:00,600
Speaker 1: chief executive officer of our ex Savings Solutions, talking about

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00:28:00,600 --> 00:28:04,840
Speaker 1: the latest in UH the effort to lower drug prices.

484
00:28:04,880 --> 00:28:07,160
Speaker 1: Really interesting about the rebates and a really interesting point

485
00:28:07,240 --> 00:28:11,280
Speaker 1: Pim that Michael thinks that if you do get rid

486
00:28:11,320 --> 00:28:13,880
Speaker 1: of the rebates, that actually end up ends up being

487
00:28:14,000 --> 00:28:18,280
Speaker 1: beneficial for the pharmaceutical companies. Well, maybe if you simplified

488
00:28:18,359 --> 00:28:22,040
Speaker 1: things and didn't create all these tangled webs, you'd actually

489
00:28:22,080 --> 00:28:24,080
Speaker 1: be able to see what you can pay for a drug,

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00:28:24,200 --> 00:28:26,480
Speaker 1: and you wouldn't have to have a million intermediaries trying

491
00:28:26,480 --> 00:28:29,920
Speaker 1: to figure it all out. Oh you mean that's common sense.

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Speaker 1: Thanks for listening to the Bloomberg P and L podcast.

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Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

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00:28:41,040 --> 00:28:44,480
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

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00:28:44,560 --> 00:28:48,560
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

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Speaker 1: It's one before the podcast. You can always catch us

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00:28:51,320 --> 00:28:52,840
Speaker 1: worldwide on Bloomberg Radio