What a Government Shutdown Means

24:54Carol Massar:So I am curious, you sound very optimistic, what's the biggest hurdle obstacle right now in you attracting further investment? What's the thing that's difficult in terms of what you do? I wouldn't say difficult, but we have to have a lot of conversations to explain the business environment, talk about their characteristics, what makes us different. But it's all very, very exciting. So we don't mind that at all. And I also do think about, you know, something that's certainly been front of mind for us, excuse me, and certainly coming off the UN General Assembly and, you know, watching the turmoil that we've seen in the region.

25:35Carol Massar:How important is that to the folks that you're talking, whether it's companies, big name companies that we know, other investors in terms of investing. Obviously, not every kingdom or area within the Middle East is the same, but, you know, the turmoil and certainly the war that we've seen between Israel and Hamas, how much of that, the political situation, sometimes slows things down? You absolutely need safety and stability for companies to thrive, for the economy to grow. And for us in Bahrain and the region as a whole, we've always advocated for peace. We've always played a part on a regional level, on an international level, to advocate for peace and stability.

26:18And we continue to do that. At the same time, the countries are very much focused on their economic strategies, economic plans. And we continue to have conversations with companies. And for those that have any doubt, we just say, come and talk to us. We will show you. We will explain to you the current business environment. But we are blessed to have a very stable and a safe business environment in Bahrain.

26:41Carol Massar:I have one last question, too. And I'm just curious, when you do have questions with investors, obviously, well-known companies, big companies, I'm sure folks do their homework. But what is the thing that you think they don't really understand about Bahrain and in terms of the economy and what you guys are doing? I think how diversified the economy is is something probably people do not realize and given the journey we've had a long journey of reform our journey in in reform and in achieving the diversification that we've achieved today with 85 percent of the economy being non-oil with a large manufacturing sector and large financial services sector and others as well something people do not realize and what that means is for years and years for decades we've built knowledge and know-how in in our people in our infrastructure in our regulation and the way we do business and the way we work with the private sector as well.

27:31So that's something that I think always surprises people when we talk to them.

27:35Carol Massar:Well, we're so glad we could get some time with you. We know we had some technical difficulties earlier, so we really appreciate you sticking around and so that we could have a conversation. Thank you. Thank you again. Her Excellency Norbent Ali Al-Khuleif, she is CEO of the Bahrain Economic Development Board, also the Kingdom's Minister of Sustainable Development. She's joining us from our L.A. Bureau. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

28:10Wall Street had long feared that President Trump would follow through with threats to impose aggressive drug pricing policies, eroding the pharmaceutical industry's profitability and depressing share prices. Those fears, though, largely laid to rest this week after Pfizer cut a deal with the White House, the company negotiating a three-year reprieve on drug import tariffs in exchange for a promise to reduce what it charges Medicaid. Here's Pfizer CEO Albert Borla at the White House yesterday alongside President Trump. The big winner of this deal clearly will be the American people.

28:41Carol Massar:There is no doubt about it. They are the ones that will see significant impact in their ability to buy medicines. But I would argue that it is not the only winner. I think who else is a winner here? It is American innovation and American economy. We're going to have another meeting next week on this. We have another great company coming in, similar kind of numbers. But we're going to show you some 1000 % drops in prices. There has never been anything like this in the history of medicine. That was President Trump, you just heard, and Pfizer CEO Albert Bourla at the White House yesterday. Pfizer shares surging close to 7 % yesterday.

29:23They're up more than 7 % today. I just hope my high school math teacher is not listening about a thousand percent drop.

29:29Carol Massar:Yeah, I know. Because we're not going to get into the math mathing there, but it's for another day. Can I just tell you, drug stocks overall in the last two days, not just Pfizer, up about 10 % in the past two days. The whole group. Let's bring in Damien Garda. He's Bloomberg News health reporter. He's been very busy. He's taken some time to join us here in the Bloomberg Interactive Brokers Studio. Are drug prices going to go down as a result of this? For the vast majority of Americans, no, I sincerely doubt it. There is no reason to conclude that based on what we learned, at least yesterday, from Albert Bourla in the Oval Office and the promises that Pfizer has made.

30:06We can get into the nitty gritty, but I think the main thing, the promise to Medicaid, an important caveat there is that patients on Medicaid, Medicaid already pays the lowest price available in the United States. It is legally obligated to get that. So the notion that Pfizer making a commitment to lower that further would change the out of pocket costs for patients. I just don't think there's much there. And furthermore, in terms of Pfizer's business, only about 5 % of that business accounts for doing business with Medicaid. That's the word business probably too many times. And I think the main thing that should drive the reaction here is that in this announcement, Pfizer, which has a fiduciary duty to maximize its profits and to update shareholders on its guidance, did not update its guidance.

30:49The company said this thing that ostensibly means we're going to make less money, at least that's how the president characterized it, but didn't actually say we're going to make less money, which, of course, legally they're required to do. I feel like that through line is maybe the lens, maybe not cynicism, but the lens of reality that people should look at these announcements. Well, look no further than the share price reaction.

31:09Carol Massar:I said yesterday, I'm like, why is this stock rallying? They're going to make less money. I had no, I just made no sense. Everybody's like, well, it's all about the tariff thing. And I'm like, and that is certainly a part of it. But I'm like, they're going to make less money. How can this be a good thing? Right. So I think the relief that you're seeing in the share price reaction is twofold, or maybe even threefold. One, it alleviates the threat that the Trump administration was really going to come down hard with an aggressive policy that would be on the books that would really constrain what drug companies could charge.

31:37Instead, we get this voluntary, relatively vague promise from Pfizer that is expected to set a template for the company's peers, Eli Lilly, Merck, etc. They will probably all have their day at the Oval Office to do a similar kind of dog and pony show. And then furthermore, what's established is that if you make those promises, you get a reprieve from tariffs, which is the other kind of overhang for the entire sector is this fear that the import of medicines from Europe would face levies of the president who said, 100, 200 percent. The notion that if you just go out there and say we're going to follow what the administration wants on drug pricing, we get that alleviation.

32:10Carol Massar:Damien, just quickly, just to be fair, I mean, has Pfizer come back and said this is going to impact us financially or it's not going to impact? Have we gotten any clarification from the company on this? They have not. There hasn't been a follow on filing with the SEC kind of making clear they're restating any guidance. And furthermore, what they've said is that the terms of their agreement with the White House are confidential. So respectfully, we can only conclude what's been said publicly. Damien Sittite, we're going to bring in Angie Frank. She's CEO of the private health company Calderos.

32:38The firm does drug discount management. It uses AI as well as communicating with different parties involved in the negotiating process to get consumers the best prices. She joins us from Wisconsin. Angie, I'll ask you the same question that I asked Damien, because you're right in the middle of this drug pricing thing. Are drug prices going to come down as a result of what we saw at the White House yesterday? I think what Damien said, there's some truth to that. I think at the end of the day, we won't all feel it immediately, but I do think drug prices are going to come down. I think the announcement yesterday is a big change to the system, and it is the first step in what I think will be multiple steps.

33:19We're certainly opening up more channels for patients to access their drugs at more affordable prices. And I think the underlying the Medicaid price that that states currently pay is going to come down based on Pfizer's announcement yesterday. Well, that's interesting. What would the mechanism for that be? Because that's what I found myself wondering even yesterday in the announcement, which, granted, was lacking key details for obvious reasons. It's very new. But why would this kind of set in motion a snowball that would end with patients paying less at the pharmacy counter? Yeah. Yeah. So I think, you know, if you look at the overall list prices starting to come down to an MFN like number and that opening most favored nations.

34:05Yes, most favored nations, exactly. And that opening up more channels for patients to access their drugs at lower rates. I do think the direct model, the website that was also announced yesterday, which opens up a channel for patients to be purchasing directly at lower costs, could really have a ripple effect on the way benefits are offered and how employers and self-insured employers start constructing benefit plans that give them a better way. their employees access to drugs, which may bypass other players in the system, the traditional players in the system, middlemen, that have been making money off of drug pricing and discounts and rebate models that really didn't benefit patients directly.

34:52So I think the new channels being opened up and the new price point at MAC's Most Favored Nation will, over the longer term have a pretty significant impact.

35:03Carol Massar:Nothing confuses me as much as picking up a prescription and coupons and pharmacy benefits. And I don't know, it's just kind of crazy. Damien, the PBMs, the pharmacy benefit managers, they are being looked at closely, like another layer that drives up costs. And so that is certainly part of the narrative here. So does that potentially remove that in what we heard from the president and the CEO of Pfizer yesterday, but then throw in this Trump Rx. Like, what role is that play? That we need to see play out. But I think through the eyes of Pfizer and certainly people in the pharmaceutical industry, there is an optimism and maybe a hope that the agreement announced yesterday, if in fact it's a template for other companies, will shift the White House's attention away from pharmaceutical manufacturers and toward the PBMs and the other middlemen that you mentioned.

35:51And I think to Angie's point, there is a potential that TrumpRx, this sort of direct-to-patient offering that we've heard about, you know, there are arguments as to just how popular that might be. How many people who don't have insurance would be willing to pay out of pocket hundreds or even thousands of dollars a year for a medicine? Is that what TrumpRx would offer? Is it an insurance, like, this is not covered by insurance? It would be a cash pay business. And so we assume that the majority of customers for it would be uninsured or underinsured, because otherwise they could get the drugs much cheaper through their insurance carrier.

36:21But the opportunity, I realize we're getting kind of in the weeds here. The opportunity is if one of those direct offerings were selling instead to employers rather than patients themselves, then they would be truly bypassing the middlemen that exist. This is sort of the Mark Cuban model that he's advocating. Plus plus drugs. Exactly. So if Trump, and I'm using my imagination here, this is not something anybody's announced, if TrumpRx, the website that has not yet launched but has been described, were to expand its aperture to include employers, then we could be talking about legitimate savings for all parties involved and a huge change to the way it's done now.

36:53Angie, come on back in here and talk a little bit about the innovation side of things, because Albert Bourla at the White House yesterday said it's not just the American patient who will be a big winner, but it would also be the American innovation and the American economy. Perhaps there are those out there who might say, OK, well, if companies, drug companies aren't able to make as much money from the drugs that they sell, R &D in this space might suffer. We know it's expensive to run the clinical trials and to do the R &D. What do you think it means for American innovation when it comes to pharmaceuticals?

37:25Well, I think it was great. I agree with Albert on all points. I think it's great for America that we're moving manufacturing and that level of innovation, job creation, et cetera, to the U.S. When you simplify the supply chain and the pricing mechanisms for our current drug pricing model, when you simplify that, today we lack so much transparency in how prices are established and who gets which price. And to your point earlier, Carol, where you mentioned, you know, the coupons and the co-pays and all these things are so confusing. They're confusing by design. People are making a lot of money off of that confusion and that opacity.

38:11When you simplify and drive more transparency, you have less waste in the system. And that waste will feed the top of the funnel. That will be dollars that can go directly to the top of the innovation funnel and enable manufacturers to continue to work on and innovate more drugs and more medication therapies that help patients with, you know, life-saving and life-changing conditions. So it takes$2.5 billion to bring a drug to market. So every dollar of waste compromises our ability to invest in more therapies. So I think it's going to have a tremendous impact over the long run.

38:49Carol Massar:Angie, just got about a minute left. I mean, just talk to us about what you do. It's a data engine. It's information. You have, it looks like a couple of different constituencies that you work with, but just give us an idea and what that tells you about kind of the drug industry and drug pricing industry, what you have been seeing. Yeah, we really have a technology platform where we ingest large volumes of data. We apply logic and rules around various pricing programs and discounts and rebates. And then we ensure price integrity, that the right price is going to the right set of patients and the right time for that particular therapy.

39:30So we're really driving quite a bit of price integrity in the system. The constituents that we work with include both pharmaceutical manufacturers and providers. And we really believe fundamentally that ensuring that the providers and the manufacturers can work more closely, directly together benefits Americans, benefits patients, benefits innovation.

39:53Carol Massar:Ten seconds, Damien. Who are we going to hear from next? What's the CEO? The expectation is that Eli Lilly will be the next company to take the stage. The president has said their name constantly without totally giving it away. But like I said, the expectation also is that all of the major peers will have their day at the Oval Office. All right. Well, we will be watching, listening, reading your reporting. Thank you so much. Angie Franks, of course, CEO of Calderas, joining us from Wisconsin. Damien Garday, health reporter at Bloomberg News here in our Bloomberg Interactive Brokers studio. This is Bloomberg Businessweek Daily.

40:22Stay with us. More from Bloomberg Businessweek Daily coming up after this.

40:31Hey everyone, it's Cal Penn, host of Earsay, the Audible and iHeart Audiobook Club. This week on the podcast, I'm sitting down with Divergent author Veronica Roth to talk about her sprawling new novel, Seek the Traitor's Son. It's a sci-fi fantasy epic about two protagonists on opposite sides of a war and a prophecy neither of them wanted. My first book was Divergent. And when that came out, like, because it was so popular, I think it attracted, like, mostly positivity, but the negativity, I sucked in like a sponge. And I think it was, like, critiques of things I liked when I was, like, you know, I was 23 and I wrote this book and it had all my, like, dorky little cheesy or maybe unrealistic loves in it.

41:13And I started to feel a lot of shame about those things. And so for the rest of my career, I steered away from those little things that like make you feel pleasure when you read. But I also was like saying no to these parts of myself that I then was like, screw it. So that's this book. Listen to Earsay, the Audible and iHeart Audiobook Club on the iHeartRadio app or wherever you get your podcasts. He's dribbling the ball with everything on the line. He's driving down the pitch. He's facing price hikes and cuts past him. Carrier Contracts tries to block him. Oh, he leaves him in the dust. He's at the edge of the box.

41:50He cuts past the nonstop group chat trash talk. He clears on goal. He shoots. No! Unlimited data for$25 a month forever. Visit your local Boost Mobile store today to get unlimited data with a price that never changes. Boost Mobile. After 30 GB, customers may experience lower speeds. Customers will pay$25 a month as long as they remain active on the Boost$25 Unlimited plan. Ask yourself, what are your best people spending their time on right now? Expense reports, receipt chasing, month-end close that takes weeks. You become what you spend on, and that's not what you're building toward. Brex is the intelligent finance platform that eliminates that work before it starts.

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43:41Carol Massar:private jobs data. We're talking about ADP. Those numbers coming in definitely below estimates, street estimates. Shedding of 32 ,000 versus estimates of a gain of 51 ,000. That's a bit of a reversal. That's exactly where I want to start with Alexis Brown Roberts, COO and portfolio manager at Alexis Investment Partners. They've got around$185 million in assets under management. She's back with us from Montgomery, Texas. Alexis, welcome back. I want to start with the labor market and your view on it. 32 ,000 job shed in private payrolls today. 51 ,000 added was the survey. Is the labor market cracking?

44:20Well, hi, first of all, thanks so much for having me back on. No, I don't think it's necessarily cracking. It is definitely weakening a bit, but we're heading into a different seasonal period once we get through October. So it'll be interesting to see what happens from there. I think the reason why job numbers were being a little bit more looked at today is because of the government shutdown and the probability that we won't get a job number on Friday. But I think there's a lot of other factors happening in markets that are going to affect things more than necessarily the job market does. And we'll have to see what this spurs the Fed to do.

45:00And if this is just a little bit more fuel to the fire for the Fed to continue cutting rates. All right.

45:06Carol Massar:So let's talk about those factors. And I guess what I'm always most interested when we talk to somebody who is managing money, big or small, if you will, is what their clients are saying, what investors are saying. Are they giving you new money to invest? Are they saying, let's back off? Let's put something in something safer? Are they buying gold? Because it seems like everybody's buying gold this year. So give us some color about what you are doing or what your clients want to do with their investments right now. Yeah, so we're tactical managers. So a lot of our clients and all of our clients really have a lot of trust in us to make the changes necessary in their portfolios and really adapt to changing conditions.

45:45So we have seen clients adding new money to portfolios, especially as we've worked through the lows last April and continuing onward. For example, in our tactical portfolios, we've really changed our equity positions throughout the past year, going from overly done in equities slightly, getting all the way up to almost 90 % on a 70 % benchmarked equity portfolio, to now being slightly underweight at about 65 percent. And within those, having a lot of fluctuations as we've seen markets change and respecting the fact that we're up 4 percent in the past month, 7 percent in the past quarter, 15 percent year to date.

46:26And just law of average, when we're aiming to do like a 10 to 12 percent on that 70 percent benchmark equity exposure, having that ability to change our equity as well as diversify. We do own gold. In fact, that's our largest position. We're at just under 9 % gold right now in that tactical portfolio. I want to understand how much upside you see in the S &P 500 right now or US stocks, I guess, more generally. Bank of America out with a note that says the sentiment indicates that it's hardly euphoric. They essentially have this indicator. It's the sell side indicator. It retracts recommended allocations to U.S.

47:05equities among different Wall Street strategists. It remained flat in September at 55 and a half percent compared to the dot com bubble in 2000 saw sell side equity allocation surge above 70 percent. And then in 2007, clearing 65 percent. So essentially, B of A saying there's more room to run. Do you agree? I would agree. I do think that there is a lot of cash on the sidelines when you talk about sentiment. That's a really interesting story. We tend to look at the AAII bull bear sentiment ratio survey. And while there has been an uptick in bulls, there has actually been even more of an uptick in bears compared to historical averages.

47:45So there is some room to run on that front. Now, we aren't necessarily euphoric at this point. Like I said, we're about at a neutral allocation, just respecting how far we've come so far this year. So we are looking still to participate in future gains. Heading into this year, we did a Fibonacci retracement, just simply looking at the breakdown in April to the lows and if we were to have an equal move back up. And that got us to about a 6 ,400 to 6 ,700 range on the S &P. Obviously, we're knocking on that 6 ,700 today. But I did also look at potentially reaching 7 ,000 and coming back. So I think it'll be interesting to see from here where we wind up.

48:31But there are a lot of reasons to still be positive on the market, but perhaps not quite as strong as we were heading into this year.

48:40Carol Massar:All right. So what's your biggest worry in this environment? One of the things that we talked with when we began our show and we had a conversation with. Allie McCartney. Yes, Allie McCartney over at UBS. She actually is alignment partners at UBS. And it was like the complacency that we're seeing in the market. The VIX is really low and that doesn't need to be certainly the indicator that tells all. But there is feels like there's a lot of folks thinking that this momentum will continue. What is the thing? What is the thing that you keep your eye on that says that, well, maybe there is problems like the, you know, today's labor data?

49:17So I would think that the main thing that we're looking at right now that gives us a little bit of pause is just valuations being a little bit rich. And once again, just respecting how far we've already come in such a short time period and just recognizing that perhaps that means that we'll have some room to pull back. And honestly, there's a lot of strong parts to the market right now, though. As you pointed out, momentum, we are strong believers in momentum and innovation. And it tends to be that if there's a strong Q3, which obviously this was a very strong Q3 in markets, that that momentum tends to carry forward through Q4.

49:55That being said, we are still watching valuations and the different moving factors. For example, Federal Reserve policy, seeing how that affects things going forward. If there is a pullback heading through Q4, we're probably going to be biased to actually buy into that, although more patient than we have been prior to reaching these valuations. But if we run up a lot through Q4, that would probably be our indicator to pull back exposure a little bit.

50:25Carol Massar:Hey, one last thing. I just got 30, 40 seconds here. Alexis, what about that AI trade? How much are your investors saying, yeah, give me exposure? And if so, how do they want that exposure? just quickly. We like AI, like I said, big, big proponents of innovation. We're not in the business of finding the next Apple and Google. We'd rather go ahead and invest in those strong fortress balance sheet companies. But really the exciting part of AI to us is how it will affect the market in general. And all these other companies, say a Walmart, a Caterpillar that will use AI to boost productivity rather than specifically trying to find that sexy AI play itself.

51:05Carol Massar:All right. Going to leave it there. Hey, good to check in with you. Alexis Brown Roberts, COO and Portfolio Manager at Alexis Investment Partners, around$185 million in assets under management. Joining us once again from Montgomery, Texas. This is the Bloomberg Business Week Daily Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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