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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Let's talk about what's going on in the healthcare space

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Speaker 2: and pharmaceuticals in particular.

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Speaker 3: A big deal here by Eli Lilly.

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Speaker 2: It's made a lot of acquisitions, Paul, I feel like

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Speaker 2: we're always talking about Eli Lilly making another purchase. Sam

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Speaker 2: Fazzelli is our Bloomberg Intelligence director of research covering healthcare, defense, industrials,

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Speaker 2: and autos. He is our drug boss, That's what we

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Speaker 2: like to call him, and he actually has a jacket.

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Speaker 3: That says that.

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Speaker 2: And Sam joins us right now from London. Sam, I

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Speaker 2: don't know if you're sharing for England, but if so,

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Speaker 2: our condolences to you. I wanted to start with this

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Speaker 2: Eli Lilly purchase, buying a tied Beckley for up to

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Speaker 2: three point eight billion dollars. That valuation strikes me as interesting.

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Speaker 2: Why for up to three point eight billion dollars are

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Speaker 2: there incentives along the way here?

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Speaker 4: Absolutely? Right? So I mean you look at the numbers.

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Speaker 5: We've got two point eight billion dollars up front cash

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Speaker 5: and a billion dollars in contingent value rights. So that's

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Speaker 5: CVRs tied to the lead assets, which are in two forms,

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Speaker 5: one in internasal the ones in under the tongue buckle

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Speaker 5: getting through phase three and also getting EA approval. Because

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Speaker 5: these are psychedelics, the drugs that are quite fashionable these

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Speaker 5: days in terms of development because of the profound effects

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Speaker 5: that we're seeing on treatment really resistant depression, on major

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Speaker 5: depressive disorder, generalized anxiety disorder, that sort of thing. So

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Speaker 5: there's a resurgers of interest in these psychedelics which are synthetic.

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Speaker 5: So that's where these extra billion dollars and condision value

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Speaker 5: rights come from, which is why the stocks trading above

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Speaker 5: the six dollars seventy five cash offer.

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Speaker 6: So the psychedelics talk to us about kind of the

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Speaker 6: that just that part of the therapeutic space there, Sam,

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Speaker 6: is it a big part of it?

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Speaker 4: It is? It is.

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Speaker 5: There are quite a few companies there, wrote a few

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Speaker 5: names do gh Research, Mindmann, Compass, just naming a few Alto, Cybin.

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Speaker 4: Realmada, etc. Who are in this.

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Speaker 5: Space, which is a significant issue for society in terms

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Speaker 5: of depression.

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Speaker 4: But also it's the fact that there's psychedelics I think takes.

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Speaker 5: Away or adds a little bit of I wonder what

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Speaker 5: they're like, you know, magic mushroom, that sort of stuff.

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Speaker 4: It's conjured up.

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Speaker 5: In fact, this particular drug originates from a specific desert toad,

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Speaker 5: which is one of the major sources of it. But

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Speaker 5: this is synthetic. The fact is they work on something

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Speaker 5: specific in the brain, and it's been shown that they

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Speaker 5: can help you to a degree rewire. Your brain is

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Speaker 5: a very plastic organ in terms of how it's learning, right,

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Speaker 5: there's plasticity. We learn new stuff all the time. So

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Speaker 5: unfortunately in the depressive state or a PTSD state, that's

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Speaker 5: a learned behavior to a degree. To put it very simply,

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Speaker 5: So that's where I think there's a lot of interest

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Speaker 5: to try and treat patients and help patients here.

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Speaker 7: Sam.

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Speaker 2: I also want to turn to MRK getting FDA approval

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Speaker 2: for a new cholesterol pill. It's going to cost thirty

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Speaker 2: eight hundred dollars a year, which sounds pretty expensive if

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Speaker 2: it's not covered by insurance. How is this different? This

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Speaker 2: new medication lipvehendra different from the world's most popular cholesterol

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Speaker 2: lawing drug, which is libtor.

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Speaker 4: Yeah. So these are drugs that work via a different mechanism.

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Speaker 5: It's an inhibitor of something in the in the within

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Speaker 5: the system called PCSK and nine that are involved in

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Speaker 5: the in the metabolism uptake production of cholesterol. And there

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Speaker 5: are other drugs that are under market that do that

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Speaker 5: work the same way, which would.

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Speaker 8: Be injectables or ones that interfere with RNA, et cetera.

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Speaker 8: You know, in terms of trying to here's the first

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Speaker 8: oral druck that we've got, and that's where I actually

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Speaker 8: don't think three hundred three thousand, eight hundred dollars.

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Speaker 4: Is a lot. You know, we're living in a world where.

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Speaker 5: Rocks come to market at ten twenty thirty fifty thousand

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Speaker 5: dollars here and here you're having a very profound effect

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Speaker 5: on LDL.

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Speaker 6: Hey, switching gears a little bit. Abbot reported some good

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Speaker 6: number stocks up the most in I don't know a

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Speaker 6: million years here. What's going on on, Abbot?

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Speaker 5: Yeah, I mean, look, so, Paul, that's not a space

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Speaker 5: that I'm particularly familiar with. But I'll tell you something.

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Speaker 5: What was interesting is yesterday we had Jonathan and Johnson report,

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Speaker 5: and you know, they have a medical devices business that

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Speaker 5: they're still ongoing with and that didn't do so well.

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Speaker 5: That was a bit of a dragon if you remember

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Speaker 5: where the share price was behaving yesterday. Abbots, of course

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Speaker 5: in more of a diagno a stake and a different

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Speaker 5: area of focus. So it's quite nice to see that working.

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Speaker 5: And there's a lot of interest in diagnostics and the

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Speaker 5: quality diagnostics, especially when they're married with therapeutics.

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Speaker 3: Stay with us more from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 6: Abbott Laboratories stock is soaring today, the most since two

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Speaker 6: thousand and two. I guess the street liked their earnings

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Speaker 6: for the second quarter and probably more importantly, their guidance

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Speaker 6: going forward. Let's check in with the analyst that covers ABT,

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Speaker 6: Matt Hendrickson, Senior equity analyst from Bloomberg Intelligence. Matt talk

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Speaker 6: to us about it. Abbot Laboratories and what they disclose

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Speaker 6: here when their earnings released.

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Speaker 9: Yeah, this earnings was a huge cyber relief for investors.

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Speaker 9: They went into the call some headwinds were or some

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Speaker 9: headnt wind risks were in the nutrition segment and that

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Speaker 9: was going to be diluted to the overall growth. There

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Speaker 9: was also questions about the CGM market, which is their

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Speaker 9: core growth driver, continuous glucose monitors.

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Speaker 6: Oh, that's the I see on people's arms.

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Speaker 9: Yeah, exactly. So it's at a little like the size

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Speaker 9: of a quarter on the army. That's a ten billion

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Speaker 9: dollar revenue run rate for the company. There were some

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Speaker 9: concerns that it was decelerating growth from kind of the

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Speaker 9: mid teens high teens from last year to below high

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Speaker 9: single digits this year. Basically, their results kind of calmed

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Speaker 9: all those nerves. Nutrition is recovering nicely after they implemented

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Speaker 9: new pricing mechanics into their their business model. The CGM business, uh,

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Speaker 9: you know, growing at nine point five percent, kind of

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Speaker 9: slightly below the double digit expectations that management had, but overall,

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Speaker 9: you know, it wasn't worse than what was expected, so

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Speaker 9: we eliminated that worst case scenario.

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Speaker 3: Okay, why was there so much concern.

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Speaker 2: I think about healthcare, and I think about United Health

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Speaker 2: in particular and some of the issues it's had with

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Speaker 2: Medicare reimbursement and government changes to reimbursement plans overall. Is

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Speaker 2: that a concern for a company like Abbot.

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Speaker 7: It's always going to be an overhang, and we saw

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Speaker 7: that earlier this week when h HCA reported and they

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Speaker 7: highlighted some headwinds from ACA related insurance patients.

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Speaker 9: We have not seen that yet in the medtech side

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Speaker 9: so far. In the second quarter.

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Speaker 10: J and J.

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Speaker 9: Talked about stable procedure volumes. Abbot talked about the same

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Speaker 9: procedure volume stability. One of the reasons I think is

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Speaker 9: that your Abbot and j J they're focusing on those

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Speaker 9: more high acuity cases more. You know, these patients need

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Speaker 9: to be treated regardless of what their insurance coverage is,

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Speaker 9: and so the hospitals almost have an obligation to treat

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Speaker 9: those patients, where some of those low acuity cases will

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Speaker 9: be deferred the longer term.

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Speaker 6: I'm looking at the PGO function on the Bloomberg terminals

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Speaker 6: shows me kind of where they get their revenue. There's

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Speaker 6: a lot of places where they get their revenue it's

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Speaker 6: highly diversified. It is highly diversified medical device company. What

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Speaker 6: is the street focus on is are there two or

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Speaker 6: three business lines that Yeah, because even with the stock

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Speaker 6: up today eleven percent is still down twenty percent year

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Speaker 6: to date. So what's kind of the investment call on

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Speaker 6: this name.

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Speaker 9: Yeah, So the first one goes back to that to

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Speaker 9: the cgms. That being that you know, kind of ten

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Speaker 9: billion revenue run rate. If you're looking at it being

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Speaker 9: back to that double digit revenue growth, that's going to

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Speaker 9: be a promising growth driver for them. That nutrition recovery,

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Speaker 9: because that is still almost twenty five percent of their sales.

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Speaker 9: If they can get that back to growth, that's going

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Speaker 9: to be a good contributor for them. And the newest

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Speaker 9: growth driver actually is the Exact Science acquisition that they made.

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Speaker 9: So when you think about you see those TV commercials

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Speaker 9: for Coli Guard, that's Exact Sciences. So now Abbott has

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Speaker 9: entered that cancer diagnostic segment and that's a business that's

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Speaker 9: they were expecting it to be mid teens growth this

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Speaker 9: year for that cancer diagnostic segment, and so if they

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Speaker 9: are able to deliver that throughout the full year, they've

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Speaker 9: grown at thirteen percent so far in the first half.

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Speaker 9: That will be a creative to kind of their six

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Speaker 9: and a half to seven and a half growth guidance.

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Speaker 2: Is there any talk about M and A when it

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Speaker 2: comes to Abbot, whether it's maybe going to divest some

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Speaker 2: businesses so that can get a higher share price, or

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Speaker 2: you know, maybe even add on because it has.

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Speaker 3: Done a pretty good job with diversification.

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Speaker 9: Yeah, let's let's I'll serve with the add ons first.

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Speaker 9: So that Exact Science deal closed early early in the

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Speaker 9: first quarter, and so that was a twenty three billion

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Speaker 9: dollar deal that they have to digest that deal. They

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Speaker 9: have they degraded, They raised twenty billion in debt, so

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Speaker 9: they have they had the free cash lit just pay

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Speaker 9: down that debt. That's the first step. Divestitures, I mean,

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Speaker 9: there's always because they're so diverse, there are some you know,

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Speaker 9: probably differentiated features like nutrition that could be able to

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Speaker 9: potentially divest in the future.

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Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts or watch us live on YouTube.

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Speaker 6: Right now, let's check out the man Deep saying he

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Speaker 6: joins us year in our Bloomberg Interactive Broker's studio. He

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Speaker 6: covers all the technology stuff there for us. I want

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Speaker 6: to start with TSMC, the chip maker. What did they

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Speaker 6: what did we learn with their earnings?

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Speaker 10: And Deep, I mean again very solid print raised their

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Speaker 10: guidance for about five percentage points for the folly year,

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Speaker 10: so and top line growth if you had to find faults.

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Speaker 10: The only thing that they didn't show, which you saw

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Speaker 10: with the memory names is pricing. So pricing growth for

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Speaker 10: memory was off the charts. We were talking about, you know,

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Speaker 10: forty percent quarter over quarter pricing growth. That doesn't seem

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Speaker 10: to be the case with TSMC, partly because of how

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Speaker 10: they run their business. And I feel all these companies

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Speaker 10: are still reluctant to expand their supply, even though TSMC

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Speaker 10: raised their capex but twelve percent for the full year,

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Speaker 10: but given the supply demand mismatch, to my mind, they're

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Speaker 10: leaving a lot of revenue at the table because they

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Speaker 10: don't want to expand supply.

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Speaker 3: Why do you think that is?

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Speaker 2: Is it just they've been burned in the past when

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Speaker 2: the cycle turned against them.

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Speaker 10: It's the management teams are very conservative. They don't want

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Speaker 10: to take a chance where they double their supply in

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Speaker 10: a year and guess what, something happens on glut and

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Speaker 10: they don't want to be in that situation. But to

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Speaker 10: my mind, the reason why Intel has a shot now

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Speaker 10: is because TSMC is conservative and expanding supply.

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Speaker 2: Just clarify for us CSMC makes chips for in video,

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Speaker 2: so we're talking the super high end AI chips.

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Speaker 3: Does it make memory chips?

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Speaker 10: No, So all the memory guys have their own fabs

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Speaker 10: and they make their own chips. So TSMC does have

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Speaker 10: a very broad set of clients it served, so not

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Speaker 10: just in Vidia, but also your AMDs, squall cooms, Apple,

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Speaker 10: Apple used to be their biggest customers, so they've pivoted

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Speaker 10: from smartphone chips to more data center chips. But at

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Speaker 10: the end of the day, they have the best process notes,

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Speaker 10: the best manufacturing capabilities. If they wanted to do the

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Speaker 10: memory chips, they could do potentially, but they've just been

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Speaker 10: conservative when it comes to expanding their supply. And we

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Speaker 10: know the concentration in Taiwan. They've talked about adding new

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Speaker 10: factor is here in the US. But when you are

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Speaker 10: a company with's literally a monopoly and the balance sheet

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Speaker 10: to expand at the pace you want, why would you

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Speaker 10: not be aggressive here? And I just don't get it,

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Speaker 10: all right.

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Speaker 6: So the very little I know about the semiconductor business

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Speaker 6: I learned from honest Shreene Boston. He told me everything.

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Speaker 6: But the first thing you taught me is it's a

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Speaker 6: cyclical business.

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Speaker 4: Dude.

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Speaker 6: If you get it wrong, you're gonna get crushed. So

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Speaker 6: the question I've been asking you guys, is is it

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Speaker 6: less cyclical and maybe materially less cyclical now with this

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Speaker 6: whole AI transformation, and what I think the management team

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Speaker 6: of TSMC is saying, we're not convinced to that.

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Speaker 10: Yeah, no one is convinced, But you get you know,

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Speaker 10: technology shifts like this in maybe two or three decades,

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Speaker 10: and this is a very big technology shift, and it's

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Speaker 10: evidenced by the fact that you have a big supply

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Speaker 10: demand mismatch that continues to carry through. And the biggest

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Speaker 10: chip maker who's exposed to the trend, Nvidia, is telling

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Speaker 10: you they have visibility to a trillion dollars in revenue.

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Speaker 10: So why would you not believe in Nvidia? If you're

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Speaker 10: a big supplier to Nvidia, is TSMC.

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Speaker 2: Is, or you're in a really good position and you

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Speaker 2: want to stay in a really good position barring Intel

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Speaker 2: coming in into taking some of that business. You mentioned

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Speaker 2: that TSMC has been looking to build production capabilities in

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Speaker 2: the US.

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Speaker 3: We know, I believe, I think it's.

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Speaker 2: Arizona where they've done that. How's that going? How's that

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Speaker 2: effort going? Because for a while there was an issue

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Speaker 2: with talent shortage right.

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Speaker 10: There is and look, they've been actually adding to their

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Speaker 10: capex for expansion here. So a lot of these fabs

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Speaker 10: take up to two years just for that initial factory

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Speaker 10: to start producing chips, and they may not be at

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Speaker 10: the leading notes like your three nanometers, so it would

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Speaker 10: be more like five six nanometer chips before they can

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Speaker 10: get to three nanometers. Partly because of the talent shortage,

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Speaker 10: they need those kind of people who can do things

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Speaker 10: at the leading note. But all of this combines with

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Speaker 10: the fact that the lead times are very long to

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Speaker 10: set these up.

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Speaker 2: The reason I asked about the talent issue is because

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Speaker 2: we're not making it easy for companies to bring in

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Speaker 2: engineers and folks with the capabilities from overseas. If that

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Speaker 2: talent is not available in the US.

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Speaker 10: Absolutely, And look, I think even when it comes to

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Speaker 10: getting permits, getting the resources, water and you know, all

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Speaker 10: the kind of supplies you need to set up a

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Speaker 10: leading semiconductor fab, it takes a lot more time here

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Speaker 10: than if it probably takes anywhere.

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Speaker 6: Else thirty seconds. Uber bought delivery Hero for close to

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Speaker 6: fifteen billion. What is delivery Hero wants to do for Uber?

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Speaker 10: I mean the playbook with all marketplaces is consolidation. Uber

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Speaker 10: Ceo did that back in the day with Expedia. He's

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Speaker 10: doing the same. And the big thread for a company

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Speaker 10: Koober is autonomous rides. So this for them is a

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Speaker 10: way to diversify that I kind of expand to now

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Speaker 10: one hundred countries. Autonomous is not going to be there

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Speaker 10: in one hundred countries, So from that perspective, there's a

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Speaker 10: question here.

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