Eli Lilly Shakes Up the Pharmacy Business With a New DTC Website, And Could Apple Be a Buyer of Peloton? 1/4/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money Here's what's on tap tonight. Drugs on demand. Eli Lilly to bypass the pharma middleman and go direct to consumers with its new obesity drug ZepBound. Is this all about simplifying access to this blockbuster category or a real industry game changer? We'll debate that. Plus, Burger Blues. McDonald's issuing a warning about the impact the war in Israel and the unrest the Middle East is having on its business. Will others soon be raising similar red flags? And later, one top tech watcher has an interesting buyer for Peloton in the new year.

0:34We'll go inside the Mobileye BlackEye. And thanks to AI, Microsoft is set to kick off a major PC refresh. We'll explain. I'm Melissa Lee. Coming to you live from Studio B at the NASDAQ on the desk tonight. Carter Braxton Worth, Vado and Eisen, Dan Nathan, and Guy Adami. We start off with Eli Lilly hitting a new all-time high during the session before closing the day with a slight loss. Shares jumping as much as 3 % at their highs. The stock is up nearly 70 % in the last year. Today's action coming after Lilly announced the launch of Lilly Direct, a direct-to-consumer website that allows patients to order its weight-loss drug ZepBound right from the company.

1:08It is a strategy that could deal a blow to traditional pharmacy companies like CVS and Walgreens. Shares of Novo Nordisk, which manufactures a rival with Govi, held on to its gains, jumping almost 4%, closing at a record. So did Eli Lilly just change the game for the health care industry? How will the stocks respond? I don't know if they changed the game. I mean, clearly they're on to something. I think other companies will act in kind. And you saw it in terms of WBA, Walgreens Boots Alliance, which had its own issues. But clearly that was under pressure. So I get it all in terms of the price action we just mentioned.

1:42That's the story today. Traded big volume, closed lower on the day after making a new all time high. And I want to be crystal clear. Eli Lilly collectively we've loved for years. But you've had opportunities to buy this stock on dips a number of times. And today might be one of those days that sets up for that type of opportunity. And when I say opportunity, I'm not talking about$600. I'm talking about it get back down to$535 to$550. Great company, but think about it now. Now it's just north of 50 times next year's numbers, which is two and a half, three turns more than its rivals. Deserve it, maybe, but expensive, yes.

2:17I mean, I think the question in terms of whether or not the stock should gain on the back of this news is whether or not going direct to consumer is actually going to increase revenue. Are they still going to be supply constrained, which seems like that's probably going to still be the case. So will they actually sell more ZEP bound because of direct-to-consumer? Or will it be the same ultimately? Well, you have to assume they did it for a reason. And presumptively it's to sell more, but to be determined. Right. Guy makes a point about the reversal. It did close red. And the stock is basically now where it was in September.

2:46So the question is, after the great run-up and then this consolidation, is this the pause before the next up leg? I would think higher. Yeah. There's a lot of sort of consensus going around in the new year, right? And so I think the collective sort of reaction on the desk would be to go against consensus. The consensus here is that there are so many catalysts in the pipeline here for a lot of these drugs in terms of trial data that will come out that will prove these drugs effective, in theory, against a host of other illnesses. So going against consensus would be to say too much is baked in. Well, it's funny.

3:20So if you were to track the performance of Novo and Lilly versus, let's say, some of the biggest beneficiaries of the AI boom in 2023, they look very similar. They kind of bottomed out in Q1 of last year, and then they literally doubled over the next, you know, call it nine months or so. And the consensus thinking that you're saying is that these are both confirmed megatrends by some of the smartest people that we know who cover these industries, but also think about markets and how value gets accrued to risk assets. Right. So heading into this year, I think that the jury is still out as far as when the commercialization of a lot of the AI stuff is.

3:51But the jury is not out on these drugs and what they are doing right now. And then you add on all of these catalysts that should help, I think, sentiment going forward in the future. So when I think about today's reversal, I say to myself, to answer your question, no doubt about it, of course they think this is going to increase sales. Right now, sales are expected to go from$34 billion for Lilly last year to$39 billion this year. But they're nearly expected to double their earnings. So think about that, from$6.50 to maybe like$13 or so. So they must think that this is good for them from a margin perspective to control the direct pipeline to their customers.

4:27There's data that's involved in that. There's a whole host of other things. So, yeah, it sounds great. But what the market is expecting for the stock from here on out probably gets a bit harder as the consensus is definitely in that this is literally they have they're in the driver's seat, as you would expect, you know, them and Novo for these products. But there's going to be other companies this year that emerge to all these other trials that are going to have good use cases for these drugs to expand on the success of Novo and Lilly. The sell side is not that sanguine. If you look at the 30 analysts that cover Lilly, their price target, 12 months hence, on average, is going for 3 % gain.

4:58Like$6.34, the stock's at$6.14,$6.50. That's not very bullish. No, not at all. It's not bullish, but it's not bearish. And really, it's a matter of has the stock essentially gotten out in front of itself? And we've seen softness pretty much across the board coming into the beginning of Q1. So it's not surprising that perhaps there's a little bit of profit taking into the positive news. Dan mentioned the margins. I think that is an important aspect. But the part that he hinted on, and I want to kind of take a little bit further, is the data aspect. I think that's really the catalyst behind why they're making this DTC move here.

5:29We've seen it in some of the consumer brands. And I think this is an opportunity for them to capitalize on what seems to be a groundbreaking drug here and really get a lot more granular data on the profile of the customer base. I mean, in theory, you could potentially have a whole database of long-term results from various customers that you can easily sort and go through and just figure out how exactly it's helped them when they stopped, when they started, et cetera, and really get that granular level of information on the effectiveness of these drugs longer term. Which is another iteration, transformative without question.

6:05But I'll go back to look at if we can pull up a two year chart of Eli Lilly, you will see, although it looks like a straight line, lower left, upper right. There have been at least five different times where we've seen significant pullbacks. The only reason I mentioned it today is because of the reversal, because of the volume. And now the valuation vertex, by the way, a name we've talked about from time to time that made an all time high today. That trades at half the valuation of Eli Lilly. Now, I'm not saying it should trade anywhere close, but my point is there are pharma stocks out there, big cap names, even in the biotech space, that have similar stories with better valuations.

6:39All right. For more on the impact of Lilly's direct-to-consumer push, let's bring in Jared Hulls, healthcare sector strategist at Mizuho. Jared, happy New Year to you. You too. Thank you. I mean, what's today? Today is the 4th of January. So Jared's the first time on this year. Is that right? Right. So what if we have, for example, what if we have a guest on the first time in, like, April? I'll say Happy New Year. That's a problem. She will now. Anyway, sorry, Jared. Anyway. Happy New Year. How do you assess this news for Lily? What do you think the bigger chess strategy is here? Well, yeah, I agree with the data aspect.

7:13I think that's huge. I mean, just removing the middleman, the concept of just taking the pharmacy channel and the supply channel out of the equation and also controlling the narrative of the drug launch itself. I think so much has been made about how is this launch going to go. It's obviously under a microscope because of the sheer number of patients it can get to. They obviously want the safety element to be first and foremost and drive adoption. So I feel like if they can control the drug launch itself into the hands of patients that it should be going to, that helps them a long way. I mean, there have been so many reports coming out of Europe and other jurisdictions about all of these side effects.

7:52I think the best thing that they can do with the target on their back with this launch, which is definitely going to be the biggest in history, the combined companies, rather, in this setting, they need to do a good job of managing it. I think this helps them do it. And the FDA is also examining a lot of the side effects associated with all of these GLP-1 drugs. So, I mean, I guess that's an issue. But you still need a doctor to write a prescription. So in terms of getting the prescriptions into the right hands, they made a big deal of that in the press release about, you know, it being used for obesity as opposed to cosmetic weight loss.

8:24Can they really control that if they're fulfilling prescriptions that are written by somebody else? Well, I think that the doctors are going to be part of this equation, right? This is a telemedicine app, so to speak, that they're going to kind of license and control along the way. So I feel like that's definitely part of it. The cosmetic piece, you know, we've talked about it many times. I think the bolus of patients that have gotten on the drug to start don't need it as much as the medically obese or the definitively obese community that doesn't have access. That could also open the door here because a lot of that population, middle America, other geographies that don't have access to really good care can now go online and get the drugs.

9:04That might open the floodgates even more for the patient population that actually needs it as opposed to like the Hollywood population that wants it to lose 15, 20 pounds. You know, you mentioned the pharmacy channel, OK, and how this might be. And we saw it in the stock market today. If you looked at some of the names there, might it be different for the telehealth? So this launch might really kind of ease some of the problems that some of these telehealth providers have, because they are obviously at the whims of a lot of these, especially pharmacy companies, which if anyone has used any of these for any sort of drug, it's not a particularly efficient sort of thing.

9:37So I wonder if it actually this is a benefit to some of these telemedicine companies who want to prescribe these drugs for a whole host of reasons. It's possible. I mean, the number of patients is so gigantic that if you can't get access for some reason to Lily Direct, you could say, hey, I'm going to try out these other sites. You could do Weight Watchers. You could do Teladoc. There are going to be so many of these services. Roe is another one that keeps on coming up in conversation. There are so many of them. It could drive broader adoption with the biggest player kind of spearheading it. But I think a lot of it is going to be, you know, patients that have tried Lilly first, having gotten what they've wanted, and then seeked another opinion.

10:15So there has been prescription data for ZepBound already, even though it's just available in the beginning of December. But through the week ending December 22nd, according to J.P. Morgan, more than 22 ,000 prescriptions have been written for it. Do you think that Lilly Direct will increase the number? Will it actually increase the number of, you know, prescriptions or drugs that they sell in the end? It should. I think, you know, the purpose of the company's strategy here is to give the drug to as many people as it can within the boundaries of the label. And so the supply constraint situation, I feel, is the biggest impediment still.

10:56Long term, I think definitely over the next couple of months, I think we're way too early to be jumping to conclusions that the scripts are going to inflect in an even bigger way because of Lilly Direct. But in time, I think that would have to be the tactic they're using. Last time you were on, we talked about Merck. It's up 17 percent-ish since you came on and talked about the undervaluedness of the name and how you thought that could play catch up. It clearly has. It's with the whisper of an all-time high. At evaluation, it makes sense. I know they spoke today at a Goldman Sachs conference. I don't know if you can speak about it.

11:28But Merck, to me, still makes sense for a myriad of different reasons here. Agree. 117 from 100, not bad. I think it still has room to go. The comments today on M &A were essentially, they're looking at anything from zero to 15 billion, which is 95 % of the XBI or IBB, whatever index you look at. I think they're still on the hunt. They've only spent about 23 billion over the past couple of years. Pfizer has spent way more than that. There have been other companies that have spent way more than that in the S &P. So there's room for more deals. And I think there's more room for the stock to inflect.

12:01I think the one important thing is, obviously, Keytruda is still there. I think a lot of those estimates for Keytruda are understated. And so if you move through the years, you're going to be presented with a bigger base business and a bigger earnings base when it starts to erode. And I think that's really important, too. So a lot of analysts looking out to 2024 say that the best times are ahead for health care, that it's going to be a return to the glory days of biotech, et cetera. It's like it's just so beaten down that it's got to be the time for this group to finally rise. Right. Do you agree?

12:33Sort of. I think a lot of that commentary is based on the discrepancy between the health care index and the S &P last year. Right. Negative 25 percent, you know, versus the index is a is a big number. I think if it weren't for that, I don't think it would be this unanimously recommended as a sector to buy into. We still have a lot to work through. On the other hand, I think a lot of the risk factors that have hurt this sector are pretty much going to either dissipate or they're going to remain the same. Right. In election year, the GLP risk, so on, drug pricing, so on and so forth. These are not new topics.

13:09So maybe that will help it. I don't think we're going to be presented with a whole other assortment of risk factors. I think the narrative, the negative narrative is the same, which is pretty good. But I'm not emphatically pushing the space just because it underperformed last year. Valuations to me when I look across medical devices, life science tools, a lot of biotech are still not nearly cheap enough. All right, Jared, good to see you. Thank you. Great to see you. Jared Wells of Mizuho. Happy New Year again. Carter? I mean, it's going to all show. All day for weeks and weeks and weeks on end.

13:40So what about a little impromptu would you rather? Oh, myself, would you rather? Okay, well, what's happened now is that Lilly is now the same way in England as UnitedHealth for the first time, right, because of its appreciation. Would you rather bet on Lilly for the next 12 to 18 months or arguably the most persistent, reliable health care earner of all time? Which in that chart, UNH, you've called the godlike chart in the past. I think you're about to break out in a bit. Let's be clear. I'm going with UNH. You're, okay. UNH. Self, would you rather? Self, would you rather? It's an interesting pairing.

14:14No, no, it's a rather for you, too. Would you rather? I already gave you mine. I do think Eli Lilly will pull back. I think you'll have an opportunity to buy it cheaper. UNH has had pullbacks as well. But I can rationalize UNH on valuation without question, and it is sort of lower left, lower right. So since we're playing the unscripted version of would you rather, I'll go with UNH as well, CBW. By the way, it's always unscripted. It's never written in. Oh, that's not true. That's not true. It always is. No, but it's a self, would you rather, as opposed to coming from me. Uh-huh. I'm never guilty.

14:45Just so we're clear. I'm never the one that's guilty of this. I'm just everybody else. Everybody else, as always is. I get blamed. Anyway, markets. Let's talk them. Markets taking a leg lower in the last hour trading with all major averages closing near the lows of the day. The Nasdaq now on a five day losing streak. It's longest since October 2022. The S &P 500 down four sessions in a row, and the Dow virtually flat after being up more than 200 points early in the day. The moves coming ahead of tomorrow's December jobs report, the latest Dow Jones estimate looking for payrolls to rise by 170 ,000.

15:18The unemployment rate is expected to tick up by one-tenth of a percent to 3.8 percent. So what kind of impact could the jobs report have on tomorrow's trading? Bonwin, how do you think about jobs? I think it'll be volatile. I mean, we've already seen the jobs opening number. That surprised you the upside, and you saw what that did to rates. Then we saw the ADP numbers, which I think beat by about 25%, 26%. So there's quite a bit of volatility here between expectations and what we're realizing. And being that we've priced in so much pull forward of rate cuts and soft landing and perfect Goldilocks scenarios, any deviation from that norm, I expect to bear on stock prices.

15:53Wages. I'll look at wages. And hourly wages, I think 0.3 % is expected. But year over year might be interesting. So you can get a scenario where maybe good news in terms of the good news. No, not necessarily. I think if these wages tick up, which is obviously good news for everybody, I don't think the market's going to particularly like that, given the fact that we priced in five or six rate cuts this year. And we just had the minutes, which were more hawkish. I mean, that's the narrative. And that was the narrative since the Fed presser in big December. But for some reason, I think the stock market had a different idea about the pace of the economy, how soft the landing we were going to have.

16:30And, you know, we have a 10-year U.S. Treasury yield that's at 4 % right now. And you tell me if we were to head back to four and a quarter over the next few weeks on a cooler than expected, right, data, if it's not just in jobs, where's the stock market? I mean, the S &P is easily at 4 ,400 or probably lower. And, you know, Carter could probably tell us maybe that's a perfectly healthy thing after the rally that we had last year in the markets and specifically last quarter. Yeah, in terms of sequencing, I mean, the straight down move in rates from 5 to 3.8, the straight down move in oil, 95 to 65, the straight down move in the dollar.

17:03Regardless of whether you're moving in a straight line up or down, you're always characterized by countertrends. So we're getting a countertrend of sorts. Dollar's moving up a bit. Rates are moving up. Oil has already moved up. And the concomitant move would be a give back in the equity market. And that's underway. But the issue is, is it just a little bit or messages from Apple and things like that isn't more than that? I think it's going to be more than that. Do you need a dictionary? I was going to say, I would agree with Carter if I knew what concomit meant. I'm going to go to my Google machine.

17:30I mean, he's unbelievable. Yeah, you can look it up during the break. Thank you. Coming up, the geopolitical impact on fast food. The warning at a McDonald's that hit shares today and the impact overseas conflict could have in the company's business. That is next. Plus, a mobile eye meltdown. Shares tanking after the chipmaker issued a stark warning on orders and inventory. But is this a standalone problem or could there be a ripple effect throughout the semispace? We'll discuss that when Fast Money returns. This is Fast Money with Melissa Lee right here on CNBC.

18:07Welcome back to Fast Money. Shares of McDonald's taking a tumble midday today. CEO Chris Kamchinsky saying that the unrest in the Middle East is impacting its business. CNBC's Kate Rogers is here with the very latest. Hey, Kate. Hey there, Melissa. McDonald's CEO Chris Kempchinski sharing an update for the new year on his LinkedIn page, including some comments on the Middle East, writing in part, quote, I also recognize that several markets in the Middle East and some outside of the region are experiencing a meaningful business impact due to the war and associated misinformation that is affecting brands like McDonald's.

18:39This is disheartening and ill-founded. In every country where we operate, including in Muslim countries, McDonald's is proudly represented by local owner-operators who work tirelessly to serve and support their communities while employing thousands of their fellow citizens. That local community connection is the genius of the McDonald's system. Now, the stock had moved lower around noon by 1%, remounted quickly, and then ended the day off just under 1%. McDonald's, though, isn't the only major brand that has made comments on the war. Starbucks CEO Loxman Narasimhan also addressed misinformation around that brand's stance in a letter to workers sent out last month.

19:15Much more to come on the business impact for these brands during earnings season in just a few short weeks. Melissa, back over to you. All right, Kate, thanks. Kate Rogers. Carter, you actually, from a charts perspective, it looks like you like it. Well, I think it's got a little bit of work to do, which is to say it sold off with the market from the summer high, but its sell-off versus 11 % was down 17. And then it's recovered with the market back to its former high. And in principle, as a rule of thumb, not infallible, but a good one, before you can exceed a high, you contend with it, right?

19:46So you're back to the level where backing and filling is likely. What do you make of this? At 23 times next year's numbers, it's not crazy given its history, okay? So valuation is OK in McDonald's. It's had a huge run since October, to Carter's point. I get concerned that it's peaked at these levels we saw in May of last year and seemingly have stalled. Now, again, a name that has gone lower left, upper right, but sell-offs along the way. So I think in the earnings, I believe on February 5th, McDonald's is a name I think you have an opportunity to buy cheaper. When I say cheaper, I mean like 8 % to 10 % cheaper from where we currently are trading.

20:22Wow. There's also an ICR retail conference next week where a lot of these fast food companies are going to be presenting. So they'll probably offer some color before the quarter about what they're seeing with the consumer specifically. And that, of course, is a big issue in food inflation. Yeah, it's interesting, you know, talking about Carter's 17 percent sell off from those July highs. I mean, we were sitting here on this desk most days watching this stock careen lower week after week and trying to like figure out what's going on here. The stock made a new 52 week low. And I just think it's really important to remember, like, all the euphoria that you could have thrown a dart, OK, at your screen, hundreds of stocks.

20:55And they were going to go up, you know, 10, 20 percent, you know, like in that period over the last few months. So, like, it's just important to remember that, you know, things that go up can also come down, too. And I look at this and Guy just mentioned, you know, trading at 23 times, mid-single digits earnings in sales growth expected for this year, big downshift from last year. And some of these things just may not make a whole heck of a lot of sense, given some of the tailwinds. If this CEO is going on LinkedIn, OK, to talk about this sort of stuff, this is not a one off sort of thing. This is going to be a theme throughout some of these consumer companies for a while, especially multinationals that have more than 60 percent of their sales outside the U.S.

21:30I'm curious. What do you mean by because he's going on LinkedIn? What does that signify as opposed to going on X or, you know, using some other platform? Yeah, I'm sure they had to put a filing out or whatever. But I mean, listen, we're going to talk about a company that, you know, pre-announced today. You know what I mean? Like, I don't know. Is this a soft pre-announcement? I mean, essentially. I'm actually with Guy. I would look for an opportunity to buy this on weakness. If you look at foot traffic versus McDonald's versus some of the peers, they've actually had positive foot traffic and the ability to raise prices.

21:59And we're starting to see a lot of food inflation come off. So I would look for an opportunity where even if you think that the overall space may be challenged, I do think this is probably one of the bailwaters within that subsector. All right. There is a lot more fast Monday to come. Here's what's coming up next. Mobileye getting poked, the supply glut warning that sent shares plummeting, and if the issue could reverberate through the chip space. Plus, putting the pedal to the metal with a bold prediction for 2024. Why our next guest believes Apple might cause shakeup in the cycling space. Plus, the other big predictions for the year ahead.