Novo Next-Generation Obesity Shot Falls Short of Lilly Rival

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1:10Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts. or watch us live on YouTube. Within the pharma space, Novo Nordisk, the ADR's American Depository Receipts, down by double digits. In fact, lower for a fifth day, losing about 16 % today. And this is after its next generation obesity shot, Kagri Sema, delivered less weight loss than Eli Lilly's rival treatment. Let's bring in Sam Fazelli.

1:50Scarlet Fu:He is our Director of Research for Global Industries and Senior Pharmaceuticals Analyst on what's happening here. And Sam, I mean, we've been keeping a close eye on Novo Nordisk because it was a pioneer in weight loss drugs, but it appears that it has really fallen behind Eli Lilly and continues to fall behind even with this next-gen obesity shot. The data shows a 20.2 % weight loss after 84 weeks compared with Eli Lilly's 23.6 % weight loss. I mean, that sounds like it's pretty small differences. Is that an unqualified failure?

2:22Sam Fazeli:Well, the trial was set up, Scarlett, to test one drug against the other, and it failed. Right? So that's you. When they start these trials, they have a hypothesis. We think our drug is as good as this one. And they set the hypothesis up. They do the right number of patients to prove that Cagrecemia is as good as terzapatide. It didn't prove that. What it does, I mean, I don't really care about these 23%, 25%. A lot of people are happy with the weight loss they get and they maintain the weight loss. That's what they care about. This rapid weight loss, a very large weight loss, may matter for much more obese patients potentially.

3:01Sam Fazeli:But the reality is, this is handed the gift to Eli Lilly now. Once this data is published, they can go out there and say, well, look, we've beaten Vigovi. We've beaten the next generation drug they've got, at least on weight loss on the surface, what happens to muscle loss and all that sort of stuff will come out, or visceral fat versus visceral fat, etc. We've beaten them, is the drug to take? And they should be able to sell as much as they can make, which is kind of what's been going on already.

3:31Scarlet Fu:All right, thank you for explaining that. It's the relative effectiveness, and in this case, giving Eli Lilly an easy win. Why is it that Nova Nordisk has lost so much ground and its edge to Eli Lilly? Does it come down to the science of it, Or is there something culturally at the company that's led to this underperformance?

3:49Sam Fazeli:Yeah, I can't speak to the culture, to be honest with you. I mean, this has been a phenomenal story for years, right? They were the pioneers in obesity, in diabetes with this class of drugs they brought for obesity. They have a lot to upload for them for. The point is, all these companies take calculated risks. Back in 2015, 16, Lilly took a calculated risk to try this new molecule, a GLP-1 attached to it, a GIP. Let's forget what they are, but they're two different ways of modulating the system. And nobody thought that GIP would do what it did. So they were lucky. They threw the dice and they got the right answer, or they just had a very clever biology person who said, I disagree with the rest of the world.

4:35Sam Fazeli:GIP will do this. So they ended up with a supercharged product. And then, of course, Novo never went down that road, even since 2018, when we all saw the first data, we went, wow, there's a whole bunch of other companies who did this. We have a list that we keep. Not Novo. They put their dice or they put their money on this combination, amyloin. A lot of people have too, but so it hasn't worked out. It's just the way that drug development goes. In six years' time, you might find that some mechanism they've got starts to beat what Lilly has. But we don't see that at the minute. and we haven't got any sight on those things.

5:11Paul Sweeney:Well, Karen from the Jersey Shore writes in and says she's a huge fan of Wegovy. It worked just great. There you go. Sam, here we go. Merck splitting its main pharmaceutical unit in two as it prepares for the approaching patent expiry of its best-selling drug. What's going on here?

5:28Sam Fazeli:Yeah, so there's one other company that does this, and it's been one of the, you plot the share charts, and you go, wow, that's pretty cool. And that's AstraZeneca. AstraZeneca has, for a long time, had a division, a person responsible for oncology business and responsible for oncology drug development. That's always been there. I think they recognized they had assets and that oncology drug development is quite different to every other area. Here's Merck now doing the same thing. Is it suggesting that because of the number of drugs that they've got coming, some in oncology, some elsewhere, it's better to have two units that look after these two things, especially in the R &D side.

6:07Sam Fazeli:I think they're doing the right thing. I don't think it tells us much about separating the reporting lines and all that sort of stuff or the P &L look of things. I think it's much more to do with making sure that they're going to get the best chance in the specialty pharma, as they call, and oncology. And I think that's the right call to make by them.

6:27Scarlet Fu:Does it lead to a formal spinoff where you might have two publicly traded companies, or is this more like an internal division within the company?

6:34Sam Fazeli:Yeah, I doubt this is about a spinoff. I mean, who knows? I'm not in the board of listening to the, or even a fly on the wall. And the thing is, I don't think you need to go that far. I think this just reorganizing the business in a way that works best for the pipeline. And I think that's the right thing to do. Especially if my colleague, Ord Gersbacher and Vinay Hamilton are right, that actually the Keytruda that people think is going to expire in terms of their patents in 2029, has another extra three years of cash flow or four years of cash flow to 2033. Remember, it's the biggest drug in the world.

7:08Sam Fazeli:If they're right in their patent analysis, you know, this really puts that oncology business in supercharged mode.

7:15Paul Sweeney:Yep. Sam, thanks so much for joining us. Appreciate it. Sam Fazelli, Director of Research for Global Industries and Senior Pharma Analyst for Bloomberg Intelligence. He's based in London where it's not snowing. Stay with us. More from Bloomberg Intelligence coming up after this.

7:29Scarlet Fu:Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday, keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break.

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8:30Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. One of the big gainers in today's trade, or maybe big is an overstatement, but given that we're seeing sizable losses in the equity indexes, I'd say a 2.4 % move higher is kind of big, right? Domino's Pizza, DPZ is the ticker. Moving higher today, the company reported a bigger than expected rise in comparable sales. So let's bring in Michael Halen. He is our senior restaurant and food service analyst for Bloomberg Intelligence.

9:11Scarlet Fu:And Michael, Domino's provides a lot of value to people. You see those ads for buy one, get one free. And they've added stuffed pizza crust to their repertoire. So people are getting value and they're getting something, I guess, in terms of food value as well. Talk to us about Domino's Pizza and the strategy here.

9:34Paul Sweeney:Yeah, so, you know, to your point, they are outperforming the market pretty handily today. It was a pretty solid report. Same-store sales topped expectations. You know, they're doing it with a few different things. Yes, the food innovation, Stuffed Crust isn't groundbreaking, but it's something that their national competitors had already offered. Right. And so they're trying to take a piece of that market here in the U.S. Value, to your point, right, their number one pizza player here in the United States. They have more stores than anyone else and they have that scale. So they are able to offer price points that their competitors really can't match and and keep it profitable for the franchisees.

10:15Paul Sweeney:You know, and then another big part of the strategy here has been the DoorDash and Uber Eats expansion. Right. So they're still delivering the food themselves, but but they're posting their their food on the third party aggregator sites. And that's been been a big boost to their business as well. What's the difference in economics, Mike, to using one of their own drivers versus a third party like a DoorDash? yeah it's a big difference paul it's it probably costs a big player like dominoes it would probably you know for them to deliver it themselves it probably costs them half of what it would cost um maybe even less than half of what it would cost so it makes a huge difference on the delivery economics you know so for the chains that already have a delivery network like Domino's, it's really a no-brainer.

11:09Scarlet Fu:One thing that Domino's did over the last quarter was make more money by selling more food to its stores, charging higher prices for ingredients, collecting more fees from the franchise operators for advertising and royalties. That's good for the bottom line, but does it sour relationships with franchise operators? I mean, how does Domino's manage that going forward?

11:31Paul Sweeney:Yeah, that's a good question, Scarlett. But, you know, franchisee relationships is crucial in this business because they're going to be the ones, you know, forking up the capital to build new stores. Right. So you want to keep them happy with strong same source sales, you know, 3 percent plus almost 4 percent gain keeps them happy. You know, in terms of the supply chain. So, you know, Domino's owns a supply chain. They want to make sure that their franchisees aren't skimping on quality. Right. And so what they do to make this palatable for their franchisees is they actually split the revenues on a monthly basis via checks with their franchisees.

12:09Paul Sweeney:Right. And so, yes, prices are going up, expected to go up low single digits this year for commodities and in the supply chain. Right. But they give back half of that, half of their profit increase back to their franchisees in a sharing agreement. All right, Mike, thanks so much for joining us. As always, our go to voice on all things in the restaurant business. Mike Kalin covers the restaurants for Bloomberg Intelligence. Stay with us. More from Bloomberg Intelligence coming up after this.

12:40Scarlet Fu:you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever

12:50Paul Sweeney:you get your podcasts or watch us live on youtube apparel retailers retailers they win some taylor relief uh tariff relief on supreme court ruling so how about that so maybe some of these apparel retailers will get a little bit of a break here as they've been bearing some of the brunt of the tariffs here. Mary Ross Gilbert joins us, senior equity analyst. She covers the retail space for Bloomberg Intelligence. She's out there in L.A. where it is not snowing. I can tell you that. Mary, thanks so much for joining us here. Supreme Court ruling striking down some of those reciprocal tariffs. What's it mean for the retailers that you cover?

13:26Michael Halen:Yes. So, Paul, what this means is that we're going to get some relief. We're not getting complete relief from tariffs. So when you think about it, just before Trump over the weekend on Saturday, I mean, first on Friday, he said he was going to exercise his ability to enforce section 122 of the 1974 tariff code. And you can go up to about 15%. So on Friday, he announced 10 % immediately, or actually it was in three days. And then Saturday said immediately 15%. So really what that means is you're going to get about a 25 % savings from the tariff rates that these apparel retailers were paying just prior to this news that came out on Saturday.

14:12Michael Halen:And so we estimate that the savings could be anywhere from 20 to 50 basis points, maybe a little more than that. And many of these apparel companies have been putting in mitigation measures. And of course, the number one being, well, first of all, diversifying away from China. so they have a lot less exposure there. And then also their suppliers absorbing, let's say about half of the tariff impact. And then of course, price increases and that's being passed on to the consumer and it's done very selectively. And so that's why the savings, the net savings is gonna be somewhere around 20 to 50 basis points.

14:51Michael Halen:And just to give you an example, what companies have disclosed is on an annual basis, they were looking for a net tariff impact, again, net of these mitigation measures, to be somewhere in that sort of 100 to 200 basis points in that range.

15:06Paul Sweeney:So I guess it's interesting here because some of these retailers have, in fact, been right kind of in the crosshairs of the tariff debate. Have any of the companies that you cover, they talked about whether they would even think about getting tariff rebates, if that's a possibility?

15:23Michael Halen:Paul, that's a really good question. I can't imagine that a rebate process could actually go into effect. It would be a nightmare to try to go back and recover these funds. It just seems, I don't know. I think it's too complex. I think we just have to let whatever tariffs were already enforced and the funds received. I certainly hope that doesn't happen because that could turn out to be a very expensive nightmare trying to recover those funds. And then the idea would be, well, should it go back to the consumer once, you know, if companies were to recover it?

16:04Paul Sweeney:So, yeah, it's very complex. So given that, I mean, we've had, you know, roughly a year of these tariffs. Is there kind of a ballpark that you've arrived at or the companies have disclosed about how much they took into their margin versus maybe how much the importer took into its margin, the consumer took into its margin there?

16:24Michael Halen:Yeah, it's very it's complex to say specifically, but I think what we were trying to allude to earlier, that 100 to 200 basis points is what these companies are effectively taking in on an annual basis based on commentary from the third quarter earnings call. So they might have gotten hit more or less depending on the retailer that we're talking about and goods that were sourced during various times, right? Because if you had some retailers that sourced fall and winter during that time when China had a tariff that was well over 100%, then that merchandise and their margin was affected very much so because they had already taken delivery of that product.

17:10Michael Halen:So really, it depends on the retailer. And then you have a couple of retailers, for example, Aritzia and Ralph Lauren. Both of those companies have been posting margin increases all year. And so they've been able to benefit from strong sales. What that means is that they're able to leverage fixed costs and get incremental benefits there and also pass on price increases. And so even though they've been negatively impacted by tariffs, you're not seeing that net effect. Whereas most of the other retailers, you have seen margins dented, and they've disclosed every quarter what the tariff impact has been, net mitigation measures.

17:51Michael Halen:And also they'll provide sort of the gross impact. So like I said, I would say the net 100 to 200 basis points. Think about Gap, Abercrombie. Gap's at the lower level. They said annual impact about 100 to 110 basis points. Abercrombie and Fitch, about 170. And American Eagle, they were sort of harder, 200 to 225 basis points.

18:14Paul Sweeney:All right. Very good. Mary Ross Gilbert, thank you so much for joining us. Mary Ross Gilbert, she's a senior equity analyst. She covers the retail space for Bloomberg Intelligence, and she's located out there in an L.A., California office. Stay with us. More from Bloomberg Intelligence coming up after this.

18:30Scarlet Fu:Hello, I'm Michelle Hussain. And for more than 20 years, I was at the BBC. Military withdrawal from Afghanistan. But all the time I was delivering the headlines, I wanted to go further than the news of the day. To spend more time with the people shaping our world. And that's what I'm doing here on this podcast. Speaking to people from Nigel Farage. This is love you trying ever so hard. Russia needs to be taught a lesson.