Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the Litigation and policy team at Bloomberg Intelligence, the
Speaker 1: investment research platform of Bloomberg LP. Just a quick word
Speaker 1: about Bloomberg Intelligence for those who don't know. We are
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Speaker 1: hundred analysts and strategists working across the globe and focused
Speaker 1: on all major markets. Our coverage includes over two thousand
Speaker 1: equities and credits, and we have outlooks on more than
Speaker 1: ninety industries and one hundred market indices, currencies and commodities.
Speaker 1: This podcast series examines the intersection of business policy and law,
Speaker 1: and today we'll be looking at the litigation and policy
Speaker 1: catalysts that we're watching in September twenty twenty four and
Speaker 1: that we think will impact companies across a number of
Speaker 1: different sectors. My name's Elliot Stein. I'm a senior litigation
Speaker 1: analyst covering litigation in the financial sector, and I'll be
Speaker 1: your host for today, September third, twenty twenty four. If
Speaker 1: you have any questions about any of the matters we
Speaker 1: discuss on this episode, please don't hesitate to reach out
Speaker 1: to us at your convenience with questions. So we'll be
Speaker 1: discussing a handful of sectors today. First, Matt Schettenhelm, who
Speaker 1: covers TMT policy and litigation, we'll discuss a key hearing
Speaker 1: in TikTok's fight against the US government's sale or ban
Speaker 1: law targeting the platform. After that, we'll talk antitrust and
Speaker 1: we'll bring in Jen Ree to update us on the
Speaker 1: trial in the FTCs challenge to the Kroger Albertsons deal,
Speaker 1: and Jen will also tell us about a key post
Speaker 1: trial hearing coming up in the Justice Department's case against
Speaker 1: Google over search, and she'll also tell us about a
Speaker 1: preliminary injunction here in the FTC's challenge of the Tapestry
Speaker 1: Capri deal. Sticking with anti trust, Justin Tarsi will then
Speaker 1: preview a trial starting September ninth in the Justice Department's
Speaker 1: case against Google over the company's two hundred billion dollar
Speaker 1: ad tech stack. After that, Holly Frome will tell us
Speaker 1: about a securities fraud trial against bouch Health, and she'll
Speaker 1: also talk about a separate trial starting September thirtieth against
Speaker 1: Abbott and Reckett's Meet Johnson unit concerning the safety of
Speaker 1: their infant formula products. Sticking with healthcare, Dwayne Wright, who
Speaker 1: covers healthcare policy in Washington, will update us on drug
Speaker 1: pricing cuts under the Inflation Reduction Act. We'll then move
Speaker 1: to financials and we'll bring in Nathan Dean, our financials
Speaker 1: policy analyst in Washington, to talk about what a Kamala
Speaker 1: Harris presidency could look like in terms of industry impacts.
Speaker 1: And Nathan will also talk about his views on the
Speaker 1: possibility of a marijuana rescheduling. I'll wrap up after that
Speaker 1: with some previews of a few things I'm watching in September,
Speaker 1: including a proposed class action a legend rigging of UK
Speaker 1: government bonds filed against several banks. I'll also talk about
Speaker 1: a Robinhood bid to beat class certification in a lawsuit
Speaker 1: over best execution disclosures. And I'll briefly talk about a
Speaker 1: September twenty seventh hearing in a coinbase lawsuit seeking to
Speaker 1: force the SEC to engage in crypto rulemaking. So all
Speaker 1: of this research is available on the Bloomberg terminal at
Speaker 1: BIG But with all that out of the way, let's
Speaker 1: get started with the content, and Matt, let's bring you
Speaker 1: in to talk some TikTok Us government, as most people
Speaker 1: probably know, pasted the law that would force TikTok to
Speaker 1: either be divested or to be banned in the US.
Speaker 1: And it sounds like there is a key hearing in
Speaker 1: the case later this month. Why don't you come in
Speaker 1: tell us more about the case and this hearing, and
Speaker 1: in particular, should my kids be worried that they might
Speaker 1: lose access to their precious TikTok.
Speaker 2: At Yeah, thanks Elliott. Yeah, this is not a drill.
Speaker 2: This ban this effective van is law.
Speaker 3: Now.
Speaker 2: Congress passed this in April. President Biden signed it and
Speaker 2: effectively bans TikTok in the United States on January nineteenth,
Speaker 2: less than five months from now. Companies can't host it
Speaker 2: or carry it in their app stores after that date,
Speaker 2: and TikTok only has two ways around that. As you said,
Speaker 2: you could sell the app to a company that doesn't
Speaker 2: have a parent located in China, or it could win
Speaker 2: this legal case. And TikTok has said it's not going
Speaker 2: to sell, so everything is about this litigation. That's the
Speaker 2: only way that the company is going to be able
Speaker 2: to continue to operate in the US after January nineteenth.
Speaker 2: TikTok and its users have brought a lawsuit in the
Speaker 2: DC saying that the court should block this law because
Speaker 2: it violates the First Amendment right of the company and
Speaker 2: of its users. Will TikTok succeed in blocking that January
Speaker 2: nineteenth date? So let me first say why there's a
Speaker 2: chance it may not. First of all, the US usually
Speaker 2: wins in this court. It wins about two thirds of
Speaker 2: its cases.
Speaker 3: Here.
Speaker 2: This case involves a national security matter where courts are
Speaker 2: very cautious.
Speaker 3: They tread carefully.
Speaker 2: Judges aren't experts on China or how it poses a risk.
Speaker 2: They're hesitant to second guest national security experts on that.
Speaker 2: And in terms of the politics, the anti TikTok movement
Speaker 2: in the US has been especially strong among Republicans. Over
Speaker 2: twenty Republican attorneys general filed in the suit, saying TikTok's
Speaker 2: First Amendment argument doesn't work. And this panel that will
Speaker 2: decide this three judges. Two of the three were nominated
Speaker 2: by Republican presidents. So if I'm TikTok this there's reason
Speaker 2: for real concern here. I don't find this an easy
Speaker 2: case to call. I think it's close more likely than
Speaker 2: not though I think TikTok convinces the Court to stop
Speaker 2: this January nineteenth deadline. I give it a sixty percent
Speaker 2: chance to win at that stage, and why despite all
Speaker 2: the points above, I think the Court is going to
Speaker 2: take the First Amendment seriously here, and one of the
Speaker 2: most important things they're going to ask is did Congress
Speaker 2: have to go this far or could it have addressed
Speaker 2: this potential risk with something that was less disruptive to speech?
Speaker 2: And I think Congress's problem here, the US's problem is
Speaker 2: that there's very little record to justify the approach that
Speaker 2: it did take, and Congress went so fast that it
Speaker 2: really didn't show its work. So I think it's very
Speaker 2: likely that even though the US can win this case,
Speaker 2: I bet it won't win the case right away in
Speaker 2: the first round, and more likely than not, the Court says, no,
Speaker 2: go back and tell us why you needed to do
Speaker 2: that build a record to justify it. So key dates
Speaker 2: to watch, though, as Elliott said, September sixteenth, is the
Speaker 2: oral argument here in Washington, DC before that three judge panel.
Speaker 2: That's going to be the best chance to evaluate how
Speaker 2: these three judges are thinking about the case. Then we
Speaker 2: should see a decision from this court. This case has
Speaker 2: been expedited. We should see a decision in early December
Speaker 2: on whether that's going to prevail or not, and then
Speaker 2: based on how they decide, we'll either see a scramble
Speaker 2: for en banc review at that court or Supreme Court
Speaker 2: review all before that January nineteenth deadline. So, in my view,
Speaker 2: real risk for TikTok, which means real upside for its competitors,
Speaker 2: but I think more likely than not TikTok wins this
Speaker 2: opening round of the litigation.
Speaker 1: Back to you, Elliott, great stuff, Thanks Matt. We'll be
Speaker 1: watching that and nothing better than a potential December scramble. Right,
Speaker 1: all right, Janrie, let's bring you in to talk some
Speaker 1: anti trust. You were in Portland, Oregon last week for
Speaker 1: a trial in the FTC's lawsuit challenging the Kroger Albertsons deal,
Speaker 1: and in September you'll be watching a hearing in the
Speaker 1: Justice Department's case against Google over search, and you're also
Speaker 1: going to be watching a preliminary injunction hearing in the
Speaker 1: FTC's case challenging the Tapestrie Capre deal. Why don't you
Speaker 1: come in tell us about all these cases and what
Speaker 1: investors should be watching.
Speaker 4: Yeah, thanks Elliot.
Speaker 5: So with the Kroger Albertsons matter, we're one week in
Speaker 5: to a three week trial, and for now, at least,
Speaker 5: I'm sticking with my initial call that I think it's
Speaker 5: more likely than not that the FTC is going to
Speaker 5: win this one. And just a brief update on what's
Speaker 5: happening here. The FTC challenged this merger because they say,
Speaker 5: in thousands of local markets, the combination of Kroger and
Speaker 5: Albertson stores will create a market concentration presumed to be
Speaker 5: anti competitive, and that means that basically, it just doesn't
Speaker 5: leave enough options for consumers to shop traditional grocery stores,
Speaker 5: which is how the FTC views the market, and that
Speaker 5: could allow these companies to increase prices. So to try
Speaker 5: to fix this, the companies offered to divest almost six
Speaker 5: hundred stores and some ancillary assets to a company called CNS,
Speaker 5: which is primarily a grocery wholesaler. The FTC didn't accept
Speaker 5: this as sufficient to replace the competitions that's lost by
Speaker 5: virtue of Albertsons and prose merging. So I think really
Speaker 5: the main issue with this trial is going to be
Speaker 5: over cns's suitability as the buyer, and another issue will
Speaker 5: be about how the market's being defined. But I think
Speaker 5: really what's going to be dispositive here is CNS, and
Speaker 5: so the testimony in this first week wasn't good for
Speaker 5: the companies.
Speaker 4: On that matter.
Speaker 5: It did shed doubt on whether CNS can successfully run
Speaker 5: retail stores, especially almost six hundred of them, And it
Speaker 5: also shed some doubt on whether CNS is actually interested
Speaker 5: in keeping and running all these stores rather than selling
Speaker 5: them to independent grocers or smaller chains in order to
Speaker 5: obtain the wholesale business of that store or chain, because
Speaker 5: they're a bigger wholesaler than they are retailer. Now, the
Speaker 5: companies did a better job last week than I expected
Speaker 5: them to in supporting their defense and rehabilitating some of
Speaker 5: their witnesses, but I still think over all, the FTC
Speaker 5: scored more points than the companies did in that first week.
Speaker 5: The judge isn't really helping much. She's pretty unreadable. She
Speaker 5: says very little and asks no questions, so there's not
Speaker 5: a lot of insight coming from there on which arguments
Speaker 5: that she may or may not.
Speaker 4: That may or may not resonate with her.
Speaker 5: So I'll be continuing to follow that trial and updating
Speaker 5: my material supportingly, and we'll see when the companies put
Speaker 5: on their case in chief, which is yet to come,
Speaker 5: how they support cns a's a divestiture buyer. So let
Speaker 5: me move on over. You're talking about DOJ and the
Speaker 5: Google Search case, which has been in the news a
Speaker 5: lot because the DOJ already won this trial essentially on liability.
Speaker 5: There was a decision that was issued in August and
Speaker 5: the judge basically ruled that Google had unlawfully acted to
Speaker 5: maintain its monopoly and it general search market and a
Speaker 5: search text advertising market by entering exclusionary agreements with third
Speaker 5: parties that foreclosed access to the market by search competitors
Speaker 5: and then prevented those competitors from gaining the scale that
Speaker 5: they need to improve. So the next phase is the remedy,
Speaker 5: and that launches this week because on September sixth, there
Speaker 5: will be a hearing to work out the next steps
Speaker 5: and a schedule. I think the DOJ will be seeking
Speaker 5: in order to try to break up the company, but
Speaker 5: we really think that that's probably not how this is
Speaker 5: going to come out. It's more likely going to be
Speaker 5: a series of behavioral modifications like a ban on these
Speaker 5: exclusionary agreements that Google has, possibly some required data sharing,
Speaker 5: maybe choice screens on Android phones, and possibly even some
Speaker 5: bands on Google in the way it uses other websites
Speaker 5: to train AI models, So it could be some sort
Speaker 5: of grouping like that. I don't think it's going to
Speaker 5: end up being a structural remedy in this case. And
Speaker 5: I also think we're several months away from the decision
Speaker 5: on the remedies this starting with this Friday meeting, but
Speaker 5: that meeting might shed some light on timing and when
Speaker 5: the judge intends to decide. Last coming up in front
Speaker 5: of us on Monday, FTC versus Tapestry and Caprie. So
Speaker 5: this is another effort to block a proposed merger between
Speaker 5: two American fashion houses. And the concern here is about
Speaker 5: a market that the FTC calls affordable or accessible luxury handbags.
Speaker 5: And that's because Tapestry manufacturers and selles coach In Kate
Speaker 5: Spade handbags, and Caprete makes some manufacturers Michael Core's handbags,
Speaker 5: and according to the FTC, these are in a category
Speaker 5: called affordable luxury, and they define this market as new
Speaker 5: handbags as opposed to resold used ones that range from
Speaker 5: one hundred dollars to one thousand dollars and are apparently
Speaker 5: purchased by households with average incomes of seventy five thousand
Speaker 5: to eighty thousand a year. And in that define market,
Speaker 5: the combined company would have well over fifty percent market
Speaker 5: share and would be able to raise prices. Now, if
Speaker 5: this all sounds it's a little bit silly to some people,
Speaker 5: I note that the FTC's mission under the antitrust laws
Speaker 5: is to try to stop any proposed consolidation that could
Speaker 5: harm a market, no matter how trivial that market might seem,
Speaker 5: or how discretionary those purchase purchases in that market might be.
Speaker 5: And apparently in this case, there is overwhelming evidence gathered
Speaker 5: from the company's files during the investigatory period did show
Speaker 5: that they really view each other as their only competitor
Speaker 5: and that they price against each other. So if one
Speaker 5: goes on sale, the other goes on sale and the others.
Speaker 5: They don't view other brands as competitors, and other brands
Speaker 5: don't constrain their prices, and this is particularly so in
Speaker 5: outlet stores. All that competition would be lost if they merged.
Speaker 5: So the trial starts Monday, September ninth. This is before
Speaker 5: Jennifer Roshan in the Southern District of New York.
Speaker 4: She's a Biden appointee.
Speaker 5: And I think outcome is a really tough call at
Speaker 5: this stage, partly because an enormous portion of this case
Speaker 5: more than I've ever seen the filings and the evidence
Speaker 5: is sealed, meaning it's kept confidential, and so we can
Speaker 5: only take the FTC's word for it for now that
Speaker 5: there are a lot overwhelmingly bad documents that support the
Speaker 5: FTC's position. Once I've observed the trial itself, where I
Speaker 5: hope they open a little more information to the public,
Speaker 5: I think it'll be easier to make the call tentatively
Speaker 5: at the outset. I lean toward the FDC for one
Speaker 5: main reason, and that's because the vote to sue was
Speaker 5: five to zero and the two Republican commissioners voted yes
Speaker 5: based on the evidence that they saw, and that suggests
Speaker 5: the FTC isn't exaggerating these extent of bad documents. But
Speaker 5: where the FTC might have a lot of trouble is
Speaker 5: establishing the successful luxury handbag market definition and explaining who's
Speaker 5: in it and who's not, and how they get to
Speaker 5: that fifty percent share, because that is a very difficult
Speaker 5: thing to do where you have a big sliding scale
Speaker 5: in terms of price, and I think that's going to
Speaker 5: be where the biggest fight is in this deal. And
Speaker 5: I think the second biggest fight is going to be
Speaker 5: with respect to whether or not this judge accepts new
Speaker 5: merger guidelines the FTC issued on a partisan basis in
Speaker 5: twenty twenty three, because those guidelines say the FTC that
Speaker 5: a deal is anti competitive if the FTC can prove
Speaker 5: that the two companies are each other's main competitors.
Speaker 4: So we'll have to see what happens a trial.
Speaker 5: It's supposed to be a week and a half long,
Speaker 5: and I think a decision will probably be issued in
Speaker 5: mid October, and I'll be updating my report on this
Speaker 5: deal partway probably the beginning of trial, and then part
Speaker 5: way through and at the end. So anyone interested in
Speaker 5: this particular matter please watch for those updates. And with that,
Speaker 5: Elliott back to you.
Speaker 3: Great.
Speaker 1: Thanks a lot, Jen, as always, so mu's going on
Speaker 1: in antitrust world. You're following that trial starting September ninth,
Speaker 1: but there's another trial that's also starting September ninth in
Speaker 1: your world. So let's bringing Justin Tesi because he's going
Speaker 1: to be following that case, and that's the DOJ's case
Speaker 1: against Google over Google's ad tech stack. So Justin, why
Speaker 1: don't you come in tell us about this trial, what
Speaker 1: the case is about, and what you're watching for.
Speaker 3: Yeah, sure, Eliot.
Speaker 6: So Google phases a second antitrust trial this month versus DOJ,
Speaker 6: following last month's verdict, the finding that the company acted
Speaker 6: anti competitively with regard to its search products, as Gen
Speaker 6: was just discussing, So this month the focus turns the
Speaker 6: company's position in the advertising technology or ad tech space,
Speaker 6: and the dominance and conduct of Google in that particular sector. First,
Speaker 6: what we're talking about when we say are ad tech, Well,
Speaker 6: think of those ads you see when you visit most
Speaker 6: websites like CNN dot com or Facebook, those little ads
Speaker 6: that appear in the sidebar or within the page content itself.
Speaker 6: And if you think those ads seem like they're tailored
Speaker 6: to you, you're right, because they absolutely are. How it
Speaker 6: works is there are three main components of how those
Speaker 6: ads get placed. There's the advertiser side or buyer side, which,
Speaker 6: as it sounds is simply the companies that are seeking
Speaker 6: to place an advertisement, usually in hopes of reaching a
Speaker 6: target demographic. There's all to the publisher side or sell side,
Speaker 6: which involves the use of tools by those websites who
Speaker 6: have advertising space to sell. And lastly, there's an advertising exchange,
Speaker 6: which acts as sort of a middleman between those two
Speaker 6: in a fraction of a second. At exchanges work to
Speaker 6: match bids by advertisers with pricing offered by publishers. At
Speaker 6: the same time seek to match website visitors through cookies
Speaker 6: and other information like user profiles, with advertising that they're likely.
Speaker 3: To respond to.
Speaker 6: And that all happens in an auction in a fraction
Speaker 6: of a second, with the winning bind resulting on the
Speaker 6: advertisement you ultimately see on a web page.
Speaker 3: So enter the problem here.
Speaker 6: Google has a widely dominant market position and not one,
Speaker 6: not two, but all three portions of this advertising stack,
Speaker 6: and doj alleges a series of anti competitive efforts by
Speaker 6: the company over the last decade or so that's that
Speaker 6: are meant to maintain the dominance of Google at the
Speaker 6: exclusion of its potential competitors. So dj alleges that it
Speaker 6: was once the case that Google only had dominance on
Speaker 6: the advertise a re side of that spectrum with its
Speaker 6: AdWords product, but it wasn't quite happy with that and
Speaker 6: instead endeavored to build a moat around the entire industry.
Speaker 6: In two thousand and eight, Google acquired double Click, which
Speaker 6: gave it the Double Click for Publisher's Product or DFP,
Speaker 6: which at the time already had a sixty percent market
Speaker 6: share of the cell side for publisher websites. It also
Speaker 6: acquired add Acts, which at the time was a nascent
Speaker 6: ad exchange. These purchases and subsequent behavior by Google really
Speaker 6: set the stage for the anti trust issues that are
Speaker 6: at play here. So the alleged anti competitive behaviors by
Speaker 6: Google over several years to solidify its dominance in every
Speaker 6: segment of the ante stack. Those include configuring adds on
Speaker 6: Addicts in such a way that it actually increased the
Speaker 6: price of advertising to the benefit of publishers and to
Speaker 6: the detriment of Google's own advertising customers, effectively effectively strengthening
Speaker 6: its cell side DFP product and making it difficult for
Speaker 6: ribal ad exchanges to compede at all. It also gave
Speaker 6: of its own addicts an advantage over those rival at
Speaker 6: exchanges through a process known as dynamic allocation, which essentially
Speaker 6: gave addicts the opportunity to buy prime website placement opportunities
Speaker 6: before anyone else could get their hands on them, often
Speaker 6: at artificially low prices. So DJ also alleges that whenever
Speaker 6: competitions attempted to spring up over the past decade, Google's
Speaker 6: either simply acquired that threat or tweaked its own algorithms
Speaker 6: in a self preferential manner, notably in the case of
Speaker 6: a competing technology known as header bidding, which was an
Speaker 6: attempt to circumvent Google's ecosystem. In response to that, Google
Speaker 6: launched something called open bidding, which DOJ says actually was
Speaker 6: a trojan horse that was packaged nicely, but in reality
Speaker 6: gave Google is seated in almost every auction out there
Speaker 6: with visibility into how rival ad exchangers were bidding on placements.
Speaker 6: So as a result of this contact, the government says
Speaker 6: Google now receives thirty five cents of every advertiser advertising
Speaker 6: dollars spent through its services through fees levied at HND
Speaker 6: of the transaction and actuality. There's no viable alternative now
Speaker 6: for advertisers or publishers in this space. According to DOJ,
Speaker 6: So lots of questions here about remedies and what they
Speaker 6: could look like if Google's found liable, and we'll definitely
Speaker 6: talk about that again in a later episode, but for now,
Speaker 6: what's important to know is this sub bench trial taking
Speaker 6: place before Judge Leoni Brinkhema in the Eastern District of Virginia,
Speaker 6: and it's proceeding that way without a jury after Google
Speaker 6: took steps to pay a government experts estimation of what
Speaker 6: the government's actual monetary damages was, thereby refute removing their
Speaker 6: right to a jury in the civil action.
Speaker 3: And lastly, Google's likely going to.
Speaker 6: Be off to a difficult start here, we think, after
Speaker 6: the government filed a motion for adverts inference, which would
Speaker 6: allow the judge to essentially infer bad facts where Google
Speaker 6: may have acted to destroy evidence, such as internal chats
Speaker 6: which were sought as part of discovery. Judge Brinkman was
Speaker 6: very critical of Google's actions at a hearing on the motion,
Speaker 6: but it's taken the matter under advisement. We'll note ourgue
Speaker 6: that while a court order breakup is an extremely rare remedy,
Speaker 6: the nature of this case could be such that this
Speaker 6: risk really is on the table, and the government is
Speaker 6: sure to at least try this to get this remedy
Speaker 6: if they win.
Speaker 3: Right now, we think Google continues to face an uphill.
Speaker 6: Battle, but it's slightly better odds than it would have
Speaker 6: if it faced a jury instead of what's now proceeding
Speaker 6: as a bench trial. So I'll be attending portions of
Speaker 6: this trial this month in Alexandria, and so meat updating
Speaker 6: our content on a terminal as Warren's developed, so I'll
Speaker 6: get it back to you.
Speaker 1: Great, thanks, justin How long is that trial is supposed
Speaker 1: to last?
Speaker 6: So I think we're looking at at least the next
Speaker 6: couple of months. Here's a little bit murky at the moment,
Speaker 6: but I think through October is a safe bet at
Speaker 6: the moment.
Speaker 1: All right, good stuff on antitrust. Let's move on to
Speaker 1: health care litigation and bring in Holly Frome. Holly, I
Speaker 1: believe a trial started today in a securities fraud case
Speaker 1: against bouch Health, and then you'll also be following a
Speaker 1: different trial starting September thirtieth against Abbott and Reckitt related
Speaker 1: to infant formula. So many trials going on in all
Speaker 1: our coverage space, it seems so, HOLLI what should investors
Speaker 1: know about these cases?
Speaker 3: Yep.
Speaker 7: Well, a trial was supposed to start today in bouch Health.
Speaker 7: They were facing a securities for our trial which was
Speaker 7: set to start September third in federal court in New Jersey.
Speaker 7: It's been adjourned, which means that the case likely will settle.
Speaker 7: This was to be a test trial for a number
Speaker 7: of entities that opt out opted out of a class
Speaker 7: action deal for one point two billion dollars in twenty nineteen.
Speaker 7: Investors claimed Bousch, which was then Valiant, already officially inflated
Speaker 7: earnings by booking fictitious sales to a pharmacy created and
Speaker 7: misled investors about price increases. The first test trial was
Speaker 7: a case filed by an investor fund, which claimed damages.
Speaker 4: Of one billion dollars.
Speaker 7: We think that will settle now now that the trial
Speaker 7: has been pushed possibly in two h and all opt
Speaker 7: outs claimed four billion dollars in damages, and though this
Speaker 7: may be a one off settlement, we think the majority
Speaker 7: of opt out planeifs will settle. Shifting gears to Abbot
Speaker 7: and Recket Abbot and Rackets meets Johnson Unit face a
Speaker 7: trial September thirtieth. Plaintiffs are alleging that cow's milk based
Speaker 7: formula caused neckritizing entero colitis in or neck in pre
Speaker 7: term babies, which is a very serious disease. It affects
Speaker 7: the intestines of infants. Babin and Record faced about a
Speaker 7: thousand of these lawsuits, halfa which are in federal court,
Speaker 7: in a multi district litigation in Illinois and the restaurant
Speaker 7: state court. The September trial is occurring in the same
Speaker 7: court where a jury recently returned a five hundred million
Speaker 7: dollars award to a plane off flu alleged neck which
Speaker 7: led to brain damage from formula allegedly. An earlier verdict
Speaker 7: and a wrongful death case out of Illinois State Court
Speaker 7: awarded the plane iff their sixty million dollars. In the
Speaker 7: federal cases, a motion of our experts will be heard
Speaker 7: in March, with the decision likely before the first federal
Speaker 7: Bell Weather trial schedules for May. We don't think the
Speaker 7: companies will settle federal cases until after that motion is decided.
Speaker 7: We said, if three thousand cases are filed, total set
Speaker 7: of value could be around two point five billion dollars.
Speaker 7: And with that, I'll turn it back to you Elliott.
Speaker 1: Great, thanks Holly. All right, let's stick with healthcare, Dwayne,
Speaker 1: Let's bring you win. Saw a lot on the news
Speaker 1: about drug pricing cuts and negotiations under the Inflation Reduction Act.
Speaker 1: What's the latest on all that?
Speaker 8: Yeah, thanks Elliott. So the long awaited prices for the
Speaker 8: ten PARTIEN drugs that were selected came out in August
Speaker 8: kind of a non event, largely because these were drugs
Speaker 8: that had already been on the market for quite some
Speaker 8: time or were highly rebated. So the big question was
Speaker 8: medicare going to go for even deeper cuts or stick
Speaker 8: pretty close to what we already see in terms of
Speaker 8: their net price. We saw that for the most part
Speaker 8: the prices were pretty steep from the list price, but
Speaker 8: for the most part closer to the net price, with
Speaker 8: the maybe the one exception being a cancer drug change
Speaker 8: Ay's in BRUVCA. And so right now, the next shoot
Speaker 8: to drop will be one of two things, and there's
Speaker 8: some flexibility for the administration in terms of how it
Speaker 8: rolls out. The next phase one we have the next
Speaker 8: set of fifteen Part D drugs that will be selected
Speaker 8: for negotiation beginning next year. That could include Novo's Zepic
Speaker 8: and wake go V, as well as other cancer drugs.
Speaker 8: We assume there'll be about five cancer drugs bread up
Speaker 8: around by companies like Pfizer, Bristol Myers and Estellas, and
Speaker 8: then astrozenic is also on the list That negotiation will
Speaker 8: start in twenty twenty five. Those prices will go into
Speaker 8: effect twenty twenty seven. The other shoot to drop will
Speaker 8: be the explanation of how medicare arrived at the for
Speaker 8: the first ten party drugs. Now that's due no later
Speaker 8: than March twenty twenty five, though we've heard that the
Speaker 8: agency could release that data sooner than that, so we'll
Speaker 8: have some more clarity on one how the administration got
Speaker 8: to the prices, but to whether it actually provides a
Speaker 8: rope nap of how it will handle negotiations.
Speaker 3: In the future.
Speaker 8: I think the preliminary feedback or response to that last
Speaker 8: point it made was if you've seen one negotiation, you've
Speaker 8: seen one negotiation. Because looking ahead, we have an election
Speaker 8: revenue administration potentially well, we will have a new administration
Speaker 8: regardless of the outcome, whether it's Harris or Trump, and
Speaker 8: they might view the process a bit more differently than
Speaker 8: say the first or this administration. So time will tell
Speaker 8: how this will play out from year to year or
Speaker 8: set of drugs, one set of drugs to another. But
Speaker 8: really all eyes on kind of the next phase of
Speaker 8: who's getting get picked and what the process is going
Speaker 8: to be like. And I should add as a final
Speaker 8: point in terms of when these prices going to effect
Speaker 8: for these first ten they'll go into affect January first,
Speaker 8: twenty twenty six. And with that all turn it back
Speaker 8: to you, Elliott.
Speaker 1: Great, thanks a lot, Dwayne. All Right, Nathan, let's bring
Speaker 1: you in. Let's talk some financials and election coverage. You've
Speaker 1: been all over the election coverage and how different industries
Speaker 1: would be impacted depending on who wins the presidency in November.
Speaker 1: Let's focus on Kamala Harris for purposes of this episode,
Speaker 1: now that we've had a month or so to analyze
Speaker 1: her as a presidential candidate. What are some of the
Speaker 1: themes that you're seeing emerging.
Speaker 9: Yeah, so, thanks Elliott. So we're going to obviously a
Speaker 9: lot of questions about Kamala Harris, the vice president and
Speaker 9: her policies, and a lot of it can be continuation
Speaker 9: of the Biden air policies. I mean, obviously she's taking
Speaker 9: over the election cycle at a critical time, and there
Speaker 9: was a lot of the infrastructure, if you will, of
Speaker 9: the Biden era regulatory regime, the campaign regime, and so forth.
Speaker 9: And she has taken that on. But as she has
Speaker 9: given speeches and as we've learned more that there are
Speaker 9: a couple of themes that are merging. And really it's
Speaker 9: this idea of being tough on consumed Sorry I was
Speaker 9: gonna say tough on consumers, but tough on consumer sectors,
Speaker 9: you know, sectors that essentially are consumer facing. And she's
Speaker 9: talking a lot about trying to play to these individuals
Speaker 9: and say, you know, we want to take care of
Speaker 9: bad actors, we want to give you tax credits, we
Speaker 9: want to essentially support you and make sure that if
Speaker 9: you're interacting with a company, you're not you know, you're
Speaker 9: not taking advantage of But what I will say is
Speaker 9: that always just remember how Washington works, and there really
Speaker 9: is just a couple of ways. It's the regulation, there's legislation,
Speaker 9: and then there's executive orders. It comes to legislation, Just
Speaker 9: remember that you don't have to be us to know
Speaker 9: that legislation is difficult to come by. So when Kamala
Speaker 9: Harri says something that I want to pass a bill
Speaker 9: that says this, More often than not, it's going to
Speaker 9: have to be a targeted bill or a negotiated bill.
Speaker 9: She's going to have most likely work with Republicans on that.
Speaker 9: When it comes to regulation, I want to direct the
Speaker 9: Federal Trade Commission to do this or the Securities in
Speaker 9: Exchange Commission to do that. Well, regulation, you can bypass
Speaker 9: the opposition, but many times, as we've said on this
Speaker 9: call before, you know, the courts are actually going to
Speaker 9: keep you in checked and so the regulators can't go forth.
Speaker 9: And it also takes a little bit more time talking quarters,
Speaker 9: if not years. And then finally, these executive orders, and
Speaker 9: I would estimate around eighty five percent of the executive
Speaker 9: orders out there are fancies ways of picking up the
Speaker 9: phone and the president telling his or her staff to
Speaker 9: do things either the regulatory route or the legislative route.
Speaker 3: So just always keep that in mind. What is Washington
Speaker 3: thinking of.
Speaker 9: But our core thesis at the moment, if she's going
Speaker 9: to be a little bit more progressive on these consumer
Speaker 9: facing issues, if you will and really ensure that a
Speaker 9: large corp operations are not bad actors and that leads
Speaker 9: to more of an enforcement risk rather than a policy risk. Now,
Speaker 9: the other thing that I've been working on is this
Speaker 9: idea of de a marijuana reschedulization. So the Drug and
Speaker 9: Enforcement Agency has proposed taking marijuana off Schedule one and
Speaker 9: moving it to Schedule three. Schedule one drugs are like
Speaker 9: heroin and cocaine. Moving to the Schedule three you think
Speaker 9: tile on, tiling on with coding, and then as a result,
Speaker 9: you know, there's a lot less regulatory scrutiny of this.
Speaker 9: Companies can actually use it for medical research. And the
Speaker 9: key caveat for marijuana companies is that there is a
Speaker 9: tax change called to ADE where your effective tax rate
Speaker 9: goes from around forty percent simwhere to round five to
Speaker 9: eight percent depending on who you are. So obviously that's
Speaker 9: a lot of cash back coming in the tax environment. Now,
Speaker 9: this is going the regulatory route what I just mentioned,
Speaker 9: so you can hogely bypass opposition. The Republicans that are
Speaker 9: posted to this, there's not much they can do. However,
Speaker 9: while there is this thought out there that this would
Speaker 9: get done this year, President Biden will want to get
Speaker 9: it done either before the election during the lame duck.
Speaker 9: We put out a piece on the terminal essentially saying
Speaker 9: that we don't think it's going to go and get
Speaker 9: done until twenty twenty five.
Speaker 3: So this could be a little bit out of consensus.
Speaker 9: And I've certainly had a lot of conversations with folks
Speaker 9: over this telling me that they think they are going
Speaker 9: to get it done this year. But my thesis is
Speaker 9: that they're going to get it done in twenty twenty five.
Speaker 9: The reason being is is that they still have to
Speaker 9: follow they be in the DEA, still has to follow
Speaker 9: the Administrative Procedures Act. This is the law that requires
Speaker 9: how regulators go forth and conduct rulemakings. And when the
Speaker 9: DEA put out a proposal saying that they are going
Speaker 9: to think about moving it to schedule from Schedule one
Speaker 9: to Schedule three, the DEA even said in that proposal
Speaker 9: the language was, and I'm just narrative paraphrasing here, that
Speaker 9: we aren't even sure if schedule three where is where
Speaker 9: it should go, because we've heard anecdotally through the through
Speaker 9: the DC gossip mill that the DEA staff over there
Speaker 9: is not really largely supportive of this move. So I
Speaker 9: don't think you can actually go from proposal with that
Speaker 9: language to having an administrative hearing to going through forty
Speaker 9: three thousand comments and then to have potentially a political
Speaker 9: decision to overrule DEA staff within six months. And that's
Speaker 9: essentially what the opposite side of my argument would say
Speaker 9: is is that the White House would essentially overrule this
Speaker 9: and get it done in six months.
Speaker 3: I understand the political will is there.
Speaker 9: I just don't think with the Supreme Court and lawyers
Speaker 9: and the lawsuits that potentially could come from this.
Speaker 3: I don't think the DEA will want to move forward
Speaker 3: and do that.
Speaker 9: So my thesis is is that this will happen, but
Speaker 9: it will happen in twenty twenty five. If Kamala Harris
Speaker 9: wins the presidency. Now President Trump wins, I think that
Speaker 9: the work will pause. President Trump just recently stated that
Speaker 9: he is open to the idea of marijuana legalization, that
Speaker 9: there is a lot of states out there thirty nine
Speaker 9: and counting that have some form of it or decriminalized legalization.
Speaker 9: But I think President Trump would essentially just hit pause
Speaker 9: on this proposal. Maybe it would have to sit for
Speaker 9: a year, a couple more months, couple more quarters, but
Speaker 9: then we'll see ultimately how the Trump administry decides, But
Speaker 9: I think this proposal does get done in twenty twenty
Speaker 9: five under a Kamala Harris, just not this year, to
Speaker 9: the sugrina of a lot of marijuana investors.
Speaker 3: So go back to you, Elliott.
Speaker 1: Thanks great, Thanks a lot, Nathan. All Right, I'll wrap
Speaker 1: up with a few things that I'm watching in September.
Speaker 1: The first is a proposed class action by pension fund
Speaker 1: investors against a handful of big banks, namely City Group,
Speaker 1: Deutsche Bank, HSBC, Morgan Stanley, and RBC, allegend that the
Speaker 1: banks manipulated the price of sterling denominated UK government bonds
Speaker 1: sold and purchased in the secondary market from twenty and
Speaker 1: nine to twenty thirteen. This is just one of many
Speaker 1: similar cases that have alleged that banks manipulated the price
Speaker 1: of bonds or rates. Several of the cases were dismissed
Speaker 1: at the motion to dismissed stage pretty early, but a
Speaker 1: few cases survive dismissal and wound up settling, sometimes for
Speaker 1: tens of millions of dollars, sometimes for hundreds of millions,
Speaker 1: sometimes for billions. In this case, the banks will be
Speaker 1: in court on September sixth to argue their emotions to
Speaker 1: dismiss and we give them a seventy percent chance of
Speaker 1: winning dismissal since we feel the complaint lacks specific allegations
Speaker 1: of a conspiracy. But the case is at a very
Speaker 1: early stage, so there's a good chance that the judge
Speaker 1: gives the plaintiffs an opportunity to amend their complaint, in
Speaker 1: which case the banks will have to move to dismiss
Speaker 1: the amended complaint. If we're wrong and the case survives dismissal,
Speaker 1: we think it'll fall on the lower end of the
Speaker 1: settlement range that we've seen in other cases, likely resulting
Speaker 1: in settlements of tens of millions of dollars per bank,
Speaker 1: obviously very manageable for the big banks that are named
Speaker 1: in the case. The second case watching this month involves Robinhood,
Speaker 1: the online broker. It's a lawsuit filed by Robinhood customers
Speaker 1: who claim the company didn't disclose that it's sacrificed execution
Speaker 1: quality in favor of the highest order flow payments from
Speaker 1: market makers. This was an issue that the sec find
Speaker 1: Robinhood over for about sixty five million dollars back in
Speaker 1: twenty twenty, and this lawsuit essentially piggybacks on those claims.
Speaker 1: We think Robinhood has about thirty four million dollars at
Speaker 1: stake in this litigation, which represents the amounts that customers
Speaker 1: allegedly lost due to what they claim were inferior trade
Speaker 1: prices resulting from Robinhood's prices. And for context, thirty four
Speaker 1: million dollars for Robinhood is about four percent of its
Speaker 1: consensus adjusted EBITDA for twenty twenty four. This case has
Speaker 1: survived a motion to dismiss and we're currently in the
Speaker 1: class certification phase where the customers are seeking to proceed
Speaker 1: as a group as a class. Robinhood will be in
Speaker 1: court on September tenth to try to beat that class
Speaker 1: certification motion, and Hood wins, you know, in beating class certification,
Speaker 1: they essentially got the case because it's very unlikely that
Speaker 1: a lot of individual customers would proceed on their own.
Speaker 1: So we actually think Robinhood has a good chance of
Speaker 1: beating class certification. We think that the individualized issues that
Speaker 1: are tied to you know, specific trades or customer losses
Speaker 1: or reliance on Robinhood's statements sort of predominate and weigh
Speaker 1: against plaintiffs proceeding as a class. And then Finally, the
Speaker 1: third case I'm watching this month involves Coinbase and the SEC.
Speaker 1: You know, there's actually two cases between Coinbase and the SEC.
Speaker 1: The case most people are probably familiar with is the
Speaker 1: SEC's enforcement action against Coinbase for allegedly acting as an
Speaker 1: unregistered securities exchange and broker. But this case that I'm
Speaker 1: talking about and that i'm watching at the end of
Speaker 1: the September, it's not the SEC's enforcement action, but it
Speaker 1: is related and it's a case actually that Coinbase filed
Speaker 1: against the SEC. And the background here is that Coinbase
Speaker 1: wanted the SEC to engage in rule making around cryptocurrencies.
Speaker 1: The SEC refused to do that, so Coinbase then sued,
Speaker 1: and its argument was that the SEC's refusal was arbitrary
Speaker 1: and capricious and an abusive discretion, and that the SEC
Speaker 1: is exceeding its authority by refusing to engage in rule
Speaker 1: making while pushing a very aggressive enforcement agenda. The parties
Speaker 1: will be in court on September twenty seventh in the
Speaker 1: Third Circuit for argument on this issue, and we give
Speaker 1: Coinbase only about a thirty percent chance of prevailing in
Speaker 1: this action, since the SEC generally has very broad discretion
Speaker 1: to set its rule making agenda, and courts are reluctant
Speaker 1: to truth upon that discretion. You know, given separation of
Speaker 1: powers concerns, we think it's exceedingly difficult to get a
Speaker 1: court to force an agency to promulgate rules. But having
Speaker 1: said all that, coinbases lead lawyer in the case is
Speaker 1: Eugene Scalia, a former guest on this Votes and Verdicts podcast,
Speaker 1: and he has a tremendous track record going up against
Speaker 1: the SEC. So you know, you can never really discount him,
Speaker 1: and you cannot discount the possibility that coinbase defies my odds.
Speaker 1: But so you know, stay tuned on all these cases. I,
Speaker 1: as everyone else, will be updating accordingly as things develop.
Speaker 1: All right, so I think with that we will wrap
Speaker 1: up this episode of Votes and Verdicts. As always, thank
Speaker 1: you for listening, and as a reminder, you can find
Speaker 1: all of our research on the Bloomberg terminal at bi Go,
Speaker 1: and we encourage you to reach out to us with
Speaker 1: any questions you may have, and we also encourage you
Speaker 1: to listen to other episodes of Votes and Verdicts on
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Speaker 1: you again and have a great day.