WEBVTT - Eli Lilly to Purchase Morphic, Green Hydrogen 0:00:02.440 --> 0:00:09.360 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:09.360 --> 0:00:13.560 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:13.560 --> 0:00:16.560 Eastern on Apple card playing Android Auto with the Bloomberg 0:00:16.600 --> 0:00:19.919 Business App. Listen on demand wherever you get your podcasts, 0:00:20.160 --> 0:00:22.919 or watch us live on YouTube. 0:00:23.400 --> 0:00:27.440 So this is about either Lily, it is buying another 0:00:27.520 --> 0:00:29.840 company called hang On, let me get my notes. 0:00:29.920 --> 0:00:30.400 Thank you. 0:00:30.520 --> 0:00:33.159 This is why I love Paul Morphic parent. It's going 0:00:33.200 --> 0:00:35.960 to help your gi track, which everybody really needs. Let's 0:00:35.960 --> 0:00:38.479 be honest. Sam Zelli, Bloomberg Intelligence, Director of Research for 0:00:38.479 --> 0:00:42.080 Global Industries and Senior Pharmaceuticals, joins us from London. 0:00:42.520 --> 0:00:45.200 Hey Sam, what is Morphic? Do we like this deal? 0:00:45.360 --> 0:00:46.080 What are your thoughts? 0:00:47.240 --> 0:00:49.639 Yeah, so, Alex, thanks for having me back on it's 0:00:49.640 --> 0:00:53.800 been a little while. So this deal is about adding 0:00:53.840 --> 0:00:58.400 to their immunology franchise. Of course, everybody knows Lily for 0:00:58.520 --> 0:01:02.840 the endless thing headlines that are related to GLP ones 0:01:02.880 --> 0:01:06.840 and obesity and cancer. Today we have apparently ten cancers 0:01:06.840 --> 0:01:10.320 that are not cured, but risk is reduced with those 0:01:10.319 --> 0:01:12.240 types of drugs. But the reality is there's a lot 0:01:12.240 --> 0:01:16.120 more to this company before the GLP one business ballooned 0:01:16.640 --> 0:01:19.479 with regards to obesity, and one of the areas there 0:01:19.520 --> 0:01:23.240 in is immunology or otherwise known as immunology and inflammation 0:01:23.760 --> 0:01:26.800 or inflammation and immunology I and I and I and 0:01:26.880 --> 0:01:29.160 I is also a very attractive area because these are 0:01:29.200 --> 0:01:33.959 areas where we all have issues with arthritissoriasis, Crow's disease, 0:01:34.280 --> 0:01:35.840 if elamentary bowel disease. 0:01:36.480 --> 0:01:40.360 All these things are stuff that we have been suffering 0:01:40.400 --> 0:01:41.119 from for years. 0:01:41.360 --> 0:01:45.280 Obesity probably increases their risk too, so and there've been 0:01:45.319 --> 0:01:49.240 a very active company in that space with three drugs 0:01:49.240 --> 0:01:51.640 four drugs on the market already and they've been doing 0:01:51.680 --> 0:01:52.680 deals adding to it. 0:01:53.600 --> 0:01:56.559 SAM three point two billion dollars is not a big 0:01:56.600 --> 0:02:00.400 big deal for Lily, But is this typical of what 0:02:00.480 --> 0:02:02.440 we see at a big pharma companies in terms of 0:02:02.520 --> 0:02:05.960 if they see a therapeutic or just a piece of 0:02:05.960 --> 0:02:09.480 science as interesting to them, it's better to buy than 0:02:09.600 --> 0:02:10.480 develop internally. 0:02:11.520 --> 0:02:14.760 Yeah, So I would say they're around thirty to forty 0:02:14.800 --> 0:02:20.680 percent of pharmaceutical companies. Pipelines comes from this type of interaction, 0:02:21.000 --> 0:02:22.800 either at. 0:02:22.720 --> 0:02:24.080 An M and a deal I e. 0:02:24.320 --> 0:02:27.360 Bought the whole thing lock Stock and Barrel, or I 0:02:27.440 --> 0:02:29.480 license a specific product in this case. 0:02:29.520 --> 0:02:31.720 So I'm looking at Lily. We have a database. 0:02:31.800 --> 0:02:34.440 Of course, we have the MAA function in the Bloomberg terminal, 0:02:34.760 --> 0:02:38.360 but we've taken that and dissected a little bit more 0:02:38.400 --> 0:02:43.320 and added on the bi dashboard and detail about the 0:02:43.360 --> 0:02:45.160 types of drugs that are in. 0:02:45.120 --> 0:02:47.320 Those deals, and MNA is one of that. 0:02:47.400 --> 0:02:49.440 So I'm looking at twelve deals that Lily has done 0:02:49.480 --> 0:02:54.120 in the past five years, and I'd say that only 0:02:54.400 --> 0:02:57.639 like three or three of them are in the cardiovascular 0:02:57.680 --> 0:03:02.880 metabolic space. I either diabetes OBS, the rest are oncology CNS, 0:03:02.919 --> 0:03:06.960 and of course two are inflammation and immunology, and this 0:03:07.080 --> 0:03:09.560 is one of them. So now it becomes three, right, 0:03:09.639 --> 0:03:12.160 because that's not quite updated yet. And they're all in 0:03:12.200 --> 0:03:15.560 the sort of range eight billion for locksow one point 0:03:15.639 --> 0:03:18.280 one eight hundred and eighty million, two point four billion. 0:03:18.520 --> 0:03:21.480 So we've got a good bunch of deals, and they're 0:03:21.480 --> 0:03:25.200 all in that level which the Farmer company is called 0:03:25.320 --> 0:03:28.320 Bolton Acquisitions, and that's their sweet spot of M and A. 0:03:28.760 --> 0:03:29.240 See Alex. 0:03:29.280 --> 0:03:33.400 Everybody thinks that the smart people in bi pharma healthcare 0:03:33.400 --> 0:03:35.200 researcher guys people like Sam Fazelliot. 0:03:35.320 --> 0:03:38.200 That's not really the case. It's this young lady named. 0:03:37.960 --> 0:03:41.800 Grace and she's in Princeton and she maintains a world 0:03:42.080 --> 0:03:45.520 class model that tracks the millions of drugs that are 0:03:45.520 --> 0:03:49.320 in various stages of you know, reviews around the world, 0:03:49.600 --> 0:03:53.560 and clients put huge value on that work that she does, 0:03:53.600 --> 0:03:55.720 and that allows Sam and some of the other anamals 0:03:55.720 --> 0:03:57.000 to go out there and talk about these drugs. 0:03:57.000 --> 0:03:59.040 So Grace a great job. 0:03:59.160 --> 0:04:03.080 As always love Paul shout out that was awesome, so true. 0:04:02.840 --> 0:04:05.440 And he needs to This particular shout out goes to 0:04:05.480 --> 0:04:09.080 another great lady who's called Mila, Mila Bankoskaya, who's also 0:04:09.160 --> 0:04:09.920 part of our team. 0:04:10.200 --> 0:04:11.880 But nobody matches up to Grace. 0:04:11.920 --> 0:04:14.520 Of course, Grace has been in the Catalyst calendar that 0:04:14.640 --> 0:04:16.080 year and I don't match up to her. 0:04:16.120 --> 0:04:17.160 Nobody matches up to her. 0:04:17.320 --> 0:04:19.640 Okay, So based on that, what are some of the 0:04:19.640 --> 0:04:22.320 cool things that are out there, like cool drugs that 0:04:22.480 --> 0:04:24.080 we should be talking about. We never get to talk 0:04:24.080 --> 0:04:26.400 to you when there's no crisis, really, so what are 0:04:26.400 --> 0:04:27.400 some cool things out there? 0:04:28.320 --> 0:04:28.520 Yeah? 0:04:28.560 --> 0:04:33.640 So obviously the OBC space, there's there's breakneck evolution of 0:04:33.680 --> 0:04:36.680 different modalities being combined trying to make it much more 0:04:36.720 --> 0:04:40.480 focused on fat, preserving some muscle, making it work better 0:04:40.520 --> 0:04:41.560 for the liver part. 0:04:41.400 --> 0:04:42.000 Of the disease. 0:04:42.200 --> 0:04:44.400 And that's all going to come to fruition over the 0:04:44.440 --> 0:04:46.640 next two or three years. On colog years, I've been 0:04:46.680 --> 0:04:49.560 saying all along is seeing amazing developments. 0:04:49.640 --> 0:04:51.080 You know, we're developing. 0:04:50.600 --> 0:04:53.760 These disease hubs, as you might know, and just for 0:04:53.839 --> 0:04:59.840 lung cancer, we're developing almost thirteen different subgroupings of lung cancer. 0:05:00.120 --> 0:05:03.240 And it just shows you where treatment of these diseases 0:05:03.480 --> 0:05:06.719 have got to. And the same applies in inflammation and imminology, 0:05:07.080 --> 0:05:10.400 and in that space we're dealing with technology that is 0:05:10.480 --> 0:05:13.720 really cool. This particular acquisition and the one that they 0:05:13.760 --> 0:05:17.240 recently did its almost exactly a year ago, called dice therapeutics, 0:05:17.480 --> 0:05:20.880 are all about dealing with proteins that are very intractable 0:05:21.040 --> 0:05:25.320 to inhibition and normal drug discovery, and these two companies 0:05:25.600 --> 0:05:30.240 have developed oral drugs small molecules that interact with these targets. 0:05:30.400 --> 0:05:32.800 And the beauty of this, of course is do you 0:05:32.839 --> 0:05:34.120 remember all that worry. 0:05:33.880 --> 0:05:36.400 That when people were having about what happens with the 0:05:36.480 --> 0:05:41.360 IRA inflation reduction acts and its impact on small molecule development, 0:05:41.400 --> 0:05:45.200 because it specifically puts them out, saying, after nine years, 0:05:45.200 --> 0:05:46.799 irrespective of your patterns, we're. 0:05:46.600 --> 0:05:48.360 Going to come back in and negotiate prices. 0:05:48.560 --> 0:05:52.000 Well, here's Lily who's done two deals that are specifically 0:05:52.480 --> 0:05:55.919 small molecule deals. When the biology is interesting, when the 0:05:56.000 --> 0:05:59.240 drugs are interesting, I think the deals happen. Now, whether 0:05:59.279 --> 0:06:01.400 these will get to market or not, who knows. I mean, 0:06:01.440 --> 0:06:04.719 farmer isn't infallible when it comes to these deals. But 0:06:05.480 --> 0:06:09.320 this shows that when they have they see something interesting, 0:06:09.360 --> 0:06:11.799 they go for it, irrespective of small or big. 0:06:11.640 --> 0:06:15.720 Molecule sam People for better or worse, are living longer 0:06:15.800 --> 0:06:19.160 and longer lives, which makes every family it seems like 0:06:19.200 --> 0:06:22.240 it's dealing with some type of dementia, Alzheimer's and things 0:06:22.279 --> 0:06:26.159 like that. How does the farmer, the farmer industry, healthcare adustry, 0:06:26.200 --> 0:06:28.760 how do they think about that? How are they kind 0:06:28.800 --> 0:06:29.599 of getting ready for that? 0:06:31.160 --> 0:06:34.360 Yeah, so you know the beginnings. Can I just give 0:06:34.400 --> 0:06:35.000 you an example. 0:06:35.040 --> 0:06:39.840 An analogue for Alzheimer's disease is obesity. We've been at 0:06:39.880 --> 0:06:43.440 this obesity game for a year, ten years, fifteen years, 0:06:43.520 --> 0:06:46.320 twenty years. I remember one of the old drugs from 0:06:46.440 --> 0:06:50.599 Rush Pharmaceuticals that are that's still around called ally that 0:06:51.839 --> 0:06:53.800 reduced the amount of fat. 0:06:53.680 --> 0:06:55.040 You absorb as you eat. 0:06:55.600 --> 0:06:58.240 Of course, what does that create fat left in your 0:06:58.240 --> 0:07:01.400 stomach lubrication. I'm going to leave the rest of it 0:07:01.480 --> 0:07:04.160 your imagination, right, So, that was the idea that was 0:07:04.200 --> 0:07:06.359 going to be helping you lose weight, maybe three percent, 0:07:06.400 --> 0:07:09.640 four percent, five percent. And then it took a lot 0:07:09.680 --> 0:07:12.640 of time before somebody started discovering these things saying, oh gosh, 0:07:12.680 --> 0:07:14.840 we can get to fifteen twenty percent. If you're a 0:07:14.840 --> 0:07:16.520 two hundred and fifty pounds person, we can help you 0:07:16.600 --> 0:07:20.880 drop seventy pounds. That happened in obesity, I'm hopeful that 0:07:20.920 --> 0:07:24.400 the same happens in dementia and neurodegeneratic diseases. 0:07:24.800 --> 0:07:26.280 It's very much tougher. 0:07:26.920 --> 0:07:29.920 I mean, all biology is tough, but CNS is tougher 0:07:29.960 --> 0:07:32.560 because it's a black box. It's a disease that evolves 0:07:32.640 --> 0:07:35.880 over twenty years, thirty years, and by the time you 0:07:36.320 --> 0:07:39.600 your disease manifests, you've already had a lot of organic 0:07:39.680 --> 0:07:42.240 change to your brain. But there is the first products 0:07:42.240 --> 0:07:44.880 that are approved. With the first products approved, you do 0:07:45.040 --> 0:07:48.040 get a bit more incentive to develop the next one. 0:07:48.240 --> 0:07:51.280 Go better, Go another mile further, and that's where I'm 0:07:51.320 --> 0:07:54.680 hoping at the very least in Alzheimer's disease and Parkinson's 0:07:54.720 --> 0:07:55.680 we're going to be going there. 0:07:55.720 --> 0:07:58.000 Other diseases are a bit tougher. Still, do you. 0:07:57.960 --> 0:08:00.640 Think that we'll ever have a preventative drug for Alzheimer's 0:08:00.720 --> 0:08:02.080 or just a treatment. 0:08:01.680 --> 0:08:05.960 To delay well, the I think it's very tough to 0:08:06.000 --> 0:08:08.520 prevent because how do you know who's going to get it? 0:08:08.520 --> 0:08:12.280 That means you and I especially I, because you guys 0:08:12.360 --> 0:08:16.920 are much longer than me, younger than me. Paul is 0:08:17.120 --> 0:08:23.080 he's just coming out of school, right, So my thing 0:08:23.200 --> 0:08:25.520 is that at what point do you start taking these drugs? 0:08:26.000 --> 0:08:26.160 Right? 0:08:26.600 --> 0:08:31.280 How do I do that? So that becomes difficult? Who 0:08:31.280 --> 0:08:31.840 pays for it? 0:08:33.040 --> 0:08:35.319 And if they're preventative, how long do I have to 0:08:35.360 --> 0:08:37.000 take them before I know? I mean, how do you 0:08:37.040 --> 0:08:40.000 even do a trial there? So don't forget though, Now 0:08:40.040 --> 0:08:43.559 that's disease. You can go into the early mild dementia 0:08:43.760 --> 0:08:46.120 and try and slow down the disease, but step at 0:08:46.120 --> 0:08:48.000 the time, at a step at the time, and nothink 0:08:48.000 --> 0:08:50.840 will we'll have something, might take a decade or two, 0:08:50.920 --> 0:08:52.920 but hopefully will have them. 0:08:53.080 --> 0:08:55.840 And Sam again, are these is this something if we 0:08:55.840 --> 0:08:58.679 see announcements on this front will likely be, you know, 0:08:58.880 --> 0:09:01.520 the big form of companies that you cover making and 0:09:01.920 --> 0:09:04.200 acquisitions of some of these smaller companies that are just 0:09:04.240 --> 0:09:05.880 focused on this one particular thing. 0:09:07.280 --> 0:09:09.920 Probably, and don't forget that also the large farmer companies. 0:09:09.960 --> 0:09:11.760 I mean then the two drugs that we have on 0:09:11.840 --> 0:09:15.559 the market today that can be and I forget what 0:09:15.679 --> 0:09:18.360 Dunana maps caol has just been approved, so I can't 0:09:18.360 --> 0:09:19.880 remember it a branded name. 0:09:19.920 --> 0:09:20.880 I'm sorry, Iliy. 0:09:22.320 --> 0:09:27.080 They both came from within either the farmer company or 0:09:28.440 --> 0:09:32.199 the a Japanese partner. However, in the case of the 0:09:32.280 --> 0:09:36.920 can be that came from a Scandinavian biotech, So both 0:09:37.000 --> 0:09:38.360 of these are true. 0:09:38.960 --> 0:09:42.000 The question is who's got the firepower. 0:09:41.400 --> 0:09:44.600 The money to spend the billions required to develop these 0:09:45.000 --> 0:09:47.280 and that's often ends up being the farmer companies. 0:09:47.280 --> 0:09:48.560 It's the large farmer companies. 0:09:49.480 --> 0:09:52.240 Do you feel like, no matter who gets to be 0:09:52.320 --> 0:09:55.640 president in here in November, here in the US, are 0:09:55.640 --> 0:09:58.520 we going to see massive drug pushback? Like I realized, 0:09:58.559 --> 0:10:01.400 it's probably a campaign tactic. But President Biden coming out 0:10:01.880 --> 0:10:04.640 last week and talking about how all the things were 0:10:04.679 --> 0:10:07.400 so expensive and really blaming like Novo Nordos. He wrote 0:10:07.400 --> 0:10:10.160 an app that with Bernie Sanders in USA today, what 0:10:10.200 --> 0:10:10.480 do you. 0:10:10.400 --> 0:10:15.560 Think I think this is a hot potato, which hand 0:10:15.559 --> 0:10:19.679 them are going to? I think it is a I 0:10:19.720 --> 0:10:22.480 don't think they are aiming their guns at the right 0:10:22.960 --> 0:10:26.520 group of companies. I think you could always argue that 0:10:26.600 --> 0:10:29.439 drug pricing because it's the easiest thing. It's a drug 0:10:29.520 --> 0:10:31.120 that people have to buy, and it says Lily on 0:10:31.200 --> 0:10:34.360 it right, is difficult for some people. 0:10:34.559 --> 0:10:36.240 A lot of people can't afford them. 0:10:36.640 --> 0:10:39.800 But there's a lot of middlemen that need to be 0:10:39.840 --> 0:10:43.640 looked at to where the where the increasing cost comes from. 0:10:44.040 --> 0:10:48.600 And you know what, the best way to entice people 0:10:48.640 --> 0:10:51.000 to develop obcity drugs, to bring down the price, to 0:10:51.040 --> 0:10:54.760 bring up competition is to allow the market to do 0:10:54.800 --> 0:10:58.200 his job. The market will do it already. These things 0:10:58.200 --> 0:11:01.440 are not costing ten one thousand dollars a month. We're 0:11:01.480 --> 0:11:04.360 more closer to five hundred net. Let the market to 0:11:04.400 --> 0:11:07.000 the job, bring more drugs. On the volume goes up, 0:11:07.040 --> 0:11:08.000 you can drop the price. 0:11:08.480 --> 0:11:10.040 Hey, Sam, thanks so much for joining us. 0:11:10.040 --> 0:11:12.960 As always expansive discussion, like we like to have a 0:11:13.000 --> 0:11:16.119 san Fazelo in all things. A big farmer in biotech Sanfazeli. 0:11:16.160 --> 0:11:19.360 He's he runs up Bloomberg Intelligencing over there in your force, 0:11:19.400 --> 0:11:21.560 and his day job is being one of the top 0:11:21.840 --> 0:11:26.000 healthcare parmer analysts in the city of London. Eli Lilly 0:11:26.000 --> 0:11:27.679 back at a bus. I've said it before, I'll say 0:11:27.679 --> 0:11:29.480 it again in my next life. I'm coming back. I 0:11:29.520 --> 0:11:32.760 think as a healthcare m and a banker, because everywhere 0:11:32.960 --> 0:11:35.320 every Monday, it seems thinking to wake up and boom, 0:11:35.360 --> 0:11:39.080 there you go, Illely buying us biotech Morphic three point 0:11:39.160 --> 0:11:40.040 two billion dollars. 0:11:40.080 --> 0:11:40.640 This is Bloomberg. 0:11:42.240 --> 0:11:46.120 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:11:46.200 --> 0:11:49.720 weekdays at ten am Eastern on applecar Play and Android 0:11:49.760 --> 0:11:52.520 Auto with the Bloomberg Business App. You can also listen 0:11:52.640 --> 0:11:55.760 live on Amazon Alexa from our flagship New York station, 0:11:56.120 --> 0:11:58.880 Just say Alexa play Bloomberg eleven thirty. 0:12:00.040 --> 0:12:03.520 A lot of folks are getting concerned about this marketplace. 0:12:03.559 --> 0:12:08.200 Is equity market's been higher, there's evaluation concerns. There's headwinds 0:12:08.240 --> 0:12:11.240 about when or if this FED is going to cut rates. 0:12:11.480 --> 0:12:14.480 There's concentration risk is probably ranks pretty highly with me. 0:12:15.080 --> 0:12:16.760 Let's check in with a professional and see how they're 0:12:16.760 --> 0:12:20.480 thinking about it. Shelby McFadden Investment analyst, Motley Full Asset 0:12:20.559 --> 0:12:25.079 Management joining us from Zoom via Zoom from Alexandria, Virginia. Shelby, 0:12:25.600 --> 0:12:27.679 how concerned are you about this marketplace? How do you 0:12:27.679 --> 0:12:30.240 feel about this market? Are you confident that this equity 0:12:30.240 --> 0:12:32.160 market can continue to move higher? 0:12:32.280 --> 0:12:33.280 Where are you these days? 0:12:34.600 --> 0:12:34.760 You know? 0:12:34.800 --> 0:12:37.360 I would say this sort of confidence and concern is 0:12:37.360 --> 0:12:39.959 sort of a two pronged issue, right. So the confidence, 0:12:40.080 --> 0:12:41.800 who can say, right, we all kind of wish we 0:12:41.840 --> 0:12:45.200 had a crystal ball, especially as active managers. But the 0:12:45.200 --> 0:12:47.240 sort of confidence, I would say, is rooted in the 0:12:47.240 --> 0:12:49.560 fact that this is the precise sort of market where 0:12:49.600 --> 0:12:52.320 you can sort of find those opportunities. They may not 0:12:52.440 --> 0:12:55.680 necessarily pay the dividend right away, and that sort of 0:12:55.679 --> 0:12:57.800 goes to the issue of concentration that you had mentioned 0:12:57.800 --> 0:13:01.360 in the introduction, where you know, to look for those winners, 0:13:01.360 --> 0:13:04.280 those diamonds in the rough that may not be sort 0:13:04.320 --> 0:13:06.800 of paying off right now, But when that return of 0:13:06.960 --> 0:13:09.840 breath comes back, that's when we sort of get to 0:13:09.880 --> 0:13:12.280 see the fruits of our labor. And that is right 0:13:12.320 --> 0:13:15.400 there the crux of active management so valuations they're rich. 0:13:15.920 --> 0:13:19.280 That can be concerning. It's never exciting to have to 0:13:19.360 --> 0:13:22.720 sit and wait for that golden opportunity that we've been 0:13:22.760 --> 0:13:25.400 watching out for, but it absolutely pays off from the end, 0:13:25.400 --> 0:13:27.439 and that's why we stick to that high quality strategy. 0:13:27.720 --> 0:13:29.520 Do you care about breath? Do you care about the 0:13:29.559 --> 0:13:32.440 seventeen hundred stats that I read today about how you 0:13:32.480 --> 0:13:35.400 know the top seven stocks reported x amount of the 0:13:35.440 --> 0:13:37.240 gain in the S and P so far this year? 0:13:37.280 --> 0:13:39.079 I say it glibly because I feel like we've been 0:13:39.120 --> 0:13:42.079 talking about this for like nine months, So how much 0:13:42.080 --> 0:13:43.440 do you care about that now? 0:13:45.120 --> 0:13:47.480 I would say that breath does still matter to us, 0:13:47.480 --> 0:13:49.560 and I even say that given the fact that we 0:13:49.679 --> 0:13:52.679 have what are considered more concentrated portfolio. So you may 0:13:52.720 --> 0:13:55.080 be thinking, how does that even make sense? It makes 0:13:55.120 --> 0:13:59.400 sense in the concept rather in the realm that compared 0:13:59.400 --> 0:14:02.760 to the SM compared to what we consider the broad market, 0:14:03.440 --> 0:14:06.400 we are more concerned with finding opportunities that are not 0:14:06.520 --> 0:14:10.280 necessarily just all concentrated in one space. So when we 0:14:10.320 --> 0:14:14.440 do look at our active ETFs, they're not always going 0:14:14.480 --> 0:14:18.439 to reflect the main stocks that are moving the market. 0:14:18.480 --> 0:14:20.840 There are going to be some more sort of niche 0:14:20.880 --> 0:14:24.960 concepts in there that underlie some of the main processes 0:14:24.960 --> 0:14:27.440 that keep our economy going. So when we look from 0:14:27.480 --> 0:14:30.720 a portfolio management perspective, breath is increasingly important to us. 0:14:31.400 --> 0:14:33.520 Shelby, how do you think about earning season. We're going 0:14:33.560 --> 0:14:35.960 to kick it off Thursday with some of the airlines 0:14:35.960 --> 0:14:38.400 and then of course the big banks kicking off on Friday. 0:14:38.560 --> 0:14:39.720 What are you looking for this quarter? 0:14:41.400 --> 0:14:43.960 I would say, going into early earning season, you know, 0:14:44.240 --> 0:14:47.600 we're not expecting anything to earth shaking from the big 0:14:47.640 --> 0:14:50.400 banks for the most part, they've already gotten all of 0:14:50.440 --> 0:14:52.600 their shakeouts going. We might hear about a little bit 0:14:52.600 --> 0:14:56.320 of M and A activity, and you know, mainly following 0:14:56.320 --> 0:14:58.720 the regionals after the big banks. As we go further 0:14:58.760 --> 0:15:01.120 into earning season, I think one of the key things 0:15:01.120 --> 0:15:03.560 that we're looking out for is going to be back 0:15:03.600 --> 0:15:07.280 office spend, those sorts of budgets on any sort of 0:15:07.400 --> 0:15:11.800 CRM technology advertising, all of those sorts of software platforms 0:15:11.800 --> 0:15:14.280 that made a lot of revenue in the past couple 0:15:14.280 --> 0:15:16.320 of years. So we're looking to see where corporate budgets 0:15:16.320 --> 0:15:18.840 are going, but also in the retail space, how is 0:15:18.880 --> 0:15:22.520 the consumer holding up? The summer is a little bit 0:15:22.640 --> 0:15:26.560 more dry in terms of promotional activity around holidays. You've 0:15:26.560 --> 0:15:29.520 got Memorial Day for Labor Day, so there's a lot 0:15:29.560 --> 0:15:31.640 of those really big chunks of weeks where there's not 0:15:31.680 --> 0:15:33.880 as much promotional activity, and that's where we're going to 0:15:33.920 --> 0:15:35.720 get a truer sense of how the consumer is doing. 0:15:35.760 --> 0:15:38.040 So we'll be having a good lookout for that sort 0:15:38.040 --> 0:15:40.640 of easter to end of Q two. 0:15:40.640 --> 0:15:45.120 Chunk for the back of the office spend are you 0:15:45.200 --> 0:15:48.240 watching specifically, like if that budget grows or just that 0:15:48.280 --> 0:15:51.160 budget stays versus shrinks, or like where it's going to 0:15:51.160 --> 0:15:53.000 actually be going and how the money is diverted. 0:15:54.520 --> 0:15:56.480 It's a sort of all of the above, right, because 0:15:56.520 --> 0:15:58.160 that's all going to tell us a different story. So 0:15:58.200 --> 0:16:00.520 if it is shrinking, that starts to tell us that 0:16:00.560 --> 0:16:04.000 potentially companies are in a spot where they're so concerned 0:16:04.000 --> 0:16:08.560 about their coffers that they are now less concerned about efficiency. 0:16:08.800 --> 0:16:11.240 We think that's a little bit less likely because when 0:16:11.240 --> 0:16:14.480 you've got shareholders, you tend to need to focus on efficiency. 0:16:15.000 --> 0:16:17.440 So we're sort of looking for that stable to growing 0:16:17.960 --> 0:16:21.200 for a number of companies there, their own sort of 0:16:21.200 --> 0:16:24.760 projections are depending on a return to growth. So a 0:16:24.800 --> 0:16:29.320 return of company's desires to have more efficiency. So I 0:16:29.360 --> 0:16:31.480 would if I had to put money on it, I 0:16:31.480 --> 0:16:34.280 would probably say, we're expecting to see on the whole 0:16:34.560 --> 0:16:36.720 plot to growth in that area. 0:16:37.280 --> 0:16:37.600 Shelby. 0:16:37.640 --> 0:16:41.640 Earlier today, we were speaking with the head economists at 0:16:41.680 --> 0:16:44.560 MasterCard to get a sense of kind of how the consumer. 0:16:44.200 --> 0:16:45.880 Is behave shell Meyer. 0:16:46.120 --> 0:16:49.720 Yes, love her, excellent, excellent, We love you too, and 0:16:49.800 --> 0:16:53.080 she she's saying, just the data that they see, the 0:16:53.160 --> 0:16:56.800 consumer is still spending and the consumer looks pretty healthy. 0:16:57.560 --> 0:16:58.440 How do you think about it? 0:17:00.160 --> 0:17:03.560 You know, it's interesting because some of the recent pieces 0:17:03.560 --> 0:17:05.720 that I've read have pointed to the fact that there's 0:17:05.760 --> 0:17:10.120 a big cohort of millennials and young or older rather 0:17:10.240 --> 0:17:12.400 gen z that are coming into the stage of their 0:17:12.400 --> 0:17:15.560 lives where they have to purchase certain necessities. The amount 0:17:15.560 --> 0:17:18.439 of money in life that they spend is just growing 0:17:18.560 --> 0:17:21.000 because it has to. And then when you put on 0:17:21.080 --> 0:17:23.000 top of that the sort of economy that we're in 0:17:23.040 --> 0:17:25.840 where things are more inflationary. We know that we're fighting that. 0:17:25.960 --> 0:17:28.600 Right now, you switsh those two things together and we 0:17:28.640 --> 0:17:30.920 get a picture that looks like a very healthy consumer 0:17:31.280 --> 0:17:35.040 on the top. You know, the superficial most level, and 0:17:35.119 --> 0:17:37.200 as we sort of drill down, we see a sort 0:17:37.240 --> 0:17:40.480 of obligation to spend when we look at the fact 0:17:40.560 --> 0:17:44.160 that retailers of things like shoes, shoes are broadly pretty 0:17:44.160 --> 0:17:46.400 weak right now, and so we think about the fact 0:17:46.400 --> 0:17:48.160 that people are not wanting to pick up those little 0:17:48.200 --> 0:17:51.960 things in the store, those little articles of clothing, you know, 0:17:52.119 --> 0:17:54.160 extra pairs of socks, things like that that you used 0:17:54.160 --> 0:17:56.480 to kind of use to comfort yourself. You drill down 0:17:56.520 --> 0:17:58.119 to that you realize a lot of the spending is 0:17:58.160 --> 0:18:02.240 not so discretionary and healthy in the sense that money 0:18:02.280 --> 0:18:06.600 is being spent, but the discretionary spend not as much. 0:18:06.720 --> 0:18:08.600 So I think we have to really drill down to 0:18:08.600 --> 0:18:10.800 see what the consumer is feeling. How do you play it? 0:18:12.600 --> 0:18:14.479 I think the way to play it is one as 0:18:14.520 --> 0:18:16.320 you meant, there's a way to play it with MasterCard, 0:18:16.760 --> 0:18:19.040 which is they're a toll taker, so you go ahead 0:18:19.119 --> 0:18:23.080 and just frankly take advantage of the fact that cars 0:18:23.080 --> 0:18:25.360 are going to be swite. Another way to play it 0:18:25.440 --> 0:18:27.640 is taking the premium end of the consumer. So when 0:18:27.640 --> 0:18:31.240 we think about companies like Costco, they're offering value, but 0:18:31.280 --> 0:18:33.600 they're offering really sticky value in the way that they're 0:18:33.640 --> 0:18:36.200 a little bit higher on the income schedule. Another way 0:18:36.200 --> 0:18:38.119 to play it is Amazon. You look at the fact 0:18:38.160 --> 0:18:40.720 that they are retail, They've got a strong retail base, 0:18:41.160 --> 0:18:44.120 and then they've also got their aws space, so they 0:18:44.160 --> 0:18:48.280 really rooted themselves pretty deeply inconvenience for both corporate and consumer. 0:18:48.800 --> 0:18:51.320 So I think it really comes down to one companies 0:18:51.359 --> 0:18:54.520 that have deeply rooted themselves across the cycle, and two 0:18:54.800 --> 0:18:57.280 premiumization and three toll takers. 0:18:58.400 --> 0:19:01.200 So I see you you've got cost go there. 0:19:01.440 --> 0:19:04.480 So that kind of to me says you have, you know, 0:19:04.600 --> 0:19:07.480 kind of a fairly constructive call on the consumer. What's 0:19:07.520 --> 0:19:09.880 the feeling behind your costco name? 0:19:11.440 --> 0:19:13.000 Well, one of the things we love about the costco 0:19:13.040 --> 0:19:15.439 business and why it's in TFC and a number of 0:19:15.440 --> 0:19:19.879 our portfolios, is that they really generate a sort of 0:19:19.920 --> 0:19:24.080 annuity type structure. Their primary earnings are really or their 0:19:24.119 --> 0:19:26.560 most stable earnings I should say, are coming from those memberships, 0:19:26.800 --> 0:19:29.640 and they've really figured out a perfect timing on those 0:19:29.640 --> 0:19:32.560 membership increases in such a way that it's almost gentle 0:19:32.640 --> 0:19:35.120 to the customer. They've established a relationship and so when 0:19:35.119 --> 0:19:37.880 it comes people aren't really you know, running for the fences, 0:19:38.200 --> 0:19:40.000 and then on top of that, they've got the best 0:19:40.000 --> 0:19:42.880 cost position in the industry. So we have actually seen 0:19:42.920 --> 0:19:44.840 over the past eighteen months or so when we listen 0:19:44.880 --> 0:19:47.160