Pharma Stocks Get Hit As Biden Weighs In… Plus Tesla’s Delivery Beat 7/2/24

0:03Live 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. Healthcare headaches. The S &P and Nasdaq had records, but shares of Lilly and Novo taking a hit. The drug makers, the latest targets for President Biden, their drug prices, they're going to become the next big hot button issue as we head into the election. Plus, Tesla revs up the EV maker stock, charging toward its highs of the year. But could it be about to hit the brakes? One top analyst will weigh in. And later, a seller's market, home building stocks on shaky ground today after a big downgrade over at Citi.

0:35The chart master will join us to lay out why you should not be going into contract on these names. I'm Melissa Lee. Come to you live in studio B at the NASDAQ on the desk tonight. Tim Seymour, Karen Feinerman, Dan Nathan, and Bono and Eisen. We start off with the op-ed that dealt a blow to shares of Novo Nordisk and Eli Lilly today. President Biden and Vermont Senator Bernie Sanders out with a new attack on the high sticker price of GLP-1 weight loss drugs, saying Novo and Lilly need to stop, quote, ripping off the American people. The pair calling the price of treatment unconscionably high compared to what patients in other countries pay, with U.S.

1:09list prices well above$1 ,000 for a month's supply of the injectables. If obesity drugs captured even half their market, they say, patients would pay more than what Americans spent on all prescriptions in 2022. Biden and Sanders further calling to extend Medicare price negotiations to 50 drugs, up from the 10 currently on the list. And also today, by the way, Eli Lilly's Alzheimer's drug getting FDA approval expected to cost$32 ,000 for 12 months of treatment, according to the company. So with all this news less than six months before the presidential election, should investors be bracing for more pressure on pharma?

1:44And that, of course, is what investors tend to think, that as we go into an election cycle, all the pharmaceutical companies have targets on their backs because of high drug pricing. Should we expect more of this? Yes. I mean, I think it's an easy target for either candidate, right? And so, I mean, we like to spend a lot of time on the GLP ones because they're so transformative. But there was a lot in the article that I felt were sort of cheap shots that don't take into account how much it costs to actually create a drug like this and how much they lose with shots on gold that never end up becoming something.

2:18Right. It doesn't address that at all. And I think it's sort of a cheap shot to say, oh, the ingredients that go into making this cost five dollars. Right. Which doesn't address so many. other things. But, I mean, who's to argue for, yay, higher drug prices? Nobody. So I think we'll just continue to see this industry as a bit of a punching bag. I have exposure there. I'm just going to wait it out. Yeah. And we had that, the person, the researcher who came up with that$5 figure, and she said very clearly, it doesn't cover the cost to develop the drug, the cost to get the drug to market, which may include the cost for the trials associated to get the drug to market, the cost to get it through the regulatory process, et cetera.

2:54The list goes on and on of all the things that are not included in that five dollar figure that must be spent in order to get that drug from the laboratory to a patient. It's an op ed, you know, means you can submit it means, you know, we know why he's submitting it. We know why this is going on. It's not been a great week for Biden. It's a dynamic here where I think also it, you know, just to add to what we're talking about structurally, it doesn't layer in the fact that international markets are just very different than our markets. All right. I mean, and there's a very different structural component to how things are priced and how we participate in that.

3:26There's a dynamic here where I think the middlemen, so to speak, in how drugs are sold often have a lot to do with some of these dynamics. So it's not terribly shocking. It's almost what took it so long. But every presidential election for the last probably four that I've sat here in this chair, we've had this kind of rhetoric. This could be Hillary Clinton, too, running for office. I I remember that and I remember what it did for the drugs on those days. So Lilly, which has had such a remarkable move, if you're telling me that an 83 basis point sell off on this headline, at least for now, is something to be worried about.

3:59Now, there could be more to follow from here. Maybe this is the first shot. But boy, this stock trades great if you think that this is something that knocked it down. Well, Senator Sanders is going to have a hearing. They have subpoenaed and the CEO has agreed, the CEO of Novo Nordisk, to appear in front of that committee in September. So there will be more. You know, Ozempic is probably the perfect drug to pick on because it is a drug that everybody wants. It's a drug that is very expensive on the sticker price. And it is a drug, as you've mentioned, that is very transformative. And so to say that$5 number, it's just it sort of gets your goose.

4:32It gets your blood boiling. Right. And I guess that's the exact purpose of this. The goal. Right. But when he says, if you do not end your greed, we will end it for you. Do you believe it? Because what will they do to actually do that? Well, I mean, that implies that there's no legislative process around actually being able to bite behind the bark. Right. And getting this through Congress would present several challenges. Right. And you see it in the op-ed saying we're able to push this through without a single Republican vote. That likely won't be the case going forward. But like let me not put the cart before the horse.

5:03If you want to kind of shift your lens and think about just the end consumer, the issue that these drugs have had has been demand outstripping supply. So if you're arguing that you're putting this in place for the people, are you in fact going to likely drive down supply artificially when you're trying to help these very constituents? And I just thought, again, to some of the other panelists' points, I'm not sure if it incorporated all of the dynamics that go into manufacture. We mentioned R &D. We mentioned marketing spin. We mentioned, you know, all of the failed attempts. But that aside, just in terms of like kind of garnering and getting emotional support around this, are you hurting the very constituents that you're arguing that you're helping with this process?

5:45Yeah, this panelist has a slightly different view on that. I mean, listen, you can tell me that the dynamics are very different outside the U.S., but if you have insurance coverage, you're paying$25 a month. And so, you know, you just one of you guys, one of the panelists just mentioned that, you know, like who's negotiating these prices? You know what I mean? Where is all the juice coming from? You know what I mean? Like it's a little outrageous. Now, I mean, to your point, when there's more competition, you know, and there's more supply, it's going to drive down costs. There's no doubt about it.

6:13But to Tim's point, I mean, Biden's going to have to do a heck of a lot more of this, you know, populist sort of stuff after last Thursday to get people kind of excited. This is kind of easy pickings. Just one more point. I do think that the government, because they are the largest buyer of several drugs, many drugs, should should be able to negotiate prices on those as they have started to do. I fully support that. For more, let's bring in NBC News medical contributor, Dr. Kavita Patel. Dr. Patel, always great to have you with us. First of all, I guess, here's the basic question. Why is it that there is such a discrepancy between what we pay here in the United States and what others pay abroad?

6:51Yeah, simply put, we have too many people in between me who prescribes a drug and anybody who's actually picking it up at the counter. that comes in the forms of pharmacy benefit managers, group purchasing organizations. You've got these very large, you know, people call it the middlemen. You've seen some very prominent New York Times articles exposing some of this, but there are a lot of people in between the drug manufacturer, the prescriber, and the patient. And that's not lost. I think it shouldn't be lost on anyone, but that's why you see such vast discrepancies. I can walk up and pay$0 copay.

7:24I don't even understand all this talk about the cost of Ozempic or Manjaro. And if you have an employer who's cut that out as a benefit, you can just simply take your insurance card and just get maybe some of the discounts, some of the rebates. There's patient assistance programs. Melissa, the list of programs that we have, the system that we have, as flawed as it is, is kind of there because people benefit from it. They profit from it. And I think that most of us don't see it. And so if anything, I think we should be having what Sanders and Biden should have had was a more honest conversation about transparency.

7:55To put it all on the manufacturer is really misleading. Yeah, they did mention, to be fair, the opaque nature of pricing, but it's not a sexy thing to go after the middleman. I mean, it's just it's not it's not a good headline for USA Today. In terms of getting to some of the numbers here, they make the assumption if half of all Medicare and Medicaid beneficiaries who are obese took Wagovi or one of these weight loss drugs, it would cost—they would spend$166 billion a year to cover it. But the fact of the matter is that you don't get coverage for obesity medicines per se. You get coverage for those medicines if they are prescribed, correct, for other ailments.

8:35So, for instance, if it's approved to prevent cardiac events, then you get coverage for that. You're not getting coverage for weight loss per se. So the numbers are it sounds like should be a little different. Yeah, I agree. They should be different. I'm also watching carefully what's going on in the House of Representatives where you had pretty broad support for bills that actually supported covering these drugs and Medicare for weight loss. But if and only if you had already been on them by the time that you aged into Medicare. So, you know, where is that going to go? It's very interesting. There was broad bipartisan support for that.

9:07So you are seeing a shift, I think, overall into supporting this for weight loss. And then, Melissa, nobody's really done the companion study of what are we going to do to benefit from not having heart attacks, not having costly ICU stays, hospital stays. I'm still a big believer that these drugs are, as Karen put it, transformative simply from a medical standpoint. You cannot deny the onslaught of clinical evidence that you and I and the panel have discussed over the last months on almost every single major chronic disease. And I think that's really what the government has to contend with. Dr.

9:40P, we've talked about a lot of good stuff and something that I think we haven't talked about in a while is the Medicare negotiation. Can you quickly remind us where you think we are and where the companies are in the pushback? Merck came in and was very aggressive out of the gates. But this talk of 10 now goes to 50 and just the timeline also for when some of this could come into play and some of the most important drugs affected. Yeah, this quarter, in the third quarter in September, we will see a lot of activity around what those costs, what that kind of result of the negotiation should look like.

10:10CMS has already kind of put out their calendar and their timeline and the manufacturers and all the court kind of disputes. I think you've now seen that you're going to have Medicare negotiate drugs. And I would say that the list of the 10 drugs, with the exception of the insulin, one is a pretty good one. So we will have not only some transparency around what that process looked like or what the net result of that is in October of this year, and then we will also actually see some of those prices come to fruition next year. And then in addition to that, an addition of those lists of drugs for the following year, 2026.

10:44So I think you're going to have a series of what I'm trying to understand, though, is that the president and Bernie Sanders, Senator Sanders, decided that they would want to expand this. Not a new idea, but I'll just add into that wrinkle that some of us are debating kind of inside the policy circuit. What does Chevron and the Supreme Court ruling do to expanding some of that like regulatory piece? So I think just from a drug negotiation standpoint, I don't think you're going to see that much of a huge delta between the manufacturer's list price and what they're offering right now for patients in Medicare and what we see Medicare negotiate.

11:18But I do think you're going to see this very slow kind of creep with all these additional drugs that people want to add, as the president outlined in an op-ed today. And if that were to come to fruition, if you think about it, just fast forward time, this is just going to be like a law of diminishing return. Every drug eventually that's covered by Medicare will be subject to negotiation. I've asked the question of Medicare and haven't gotten a direct answer because it's all still done behind the scenes right now. What will that matter to the out-of-pocket costs? The conversation we're having today in the op-ed is really around out-of-pocket costs that are hurting people in their pocketbooks.

11:54I will be interested in seeing what is that true delta for out-of-pocket costs from Medicare seniors. Dr. Patel, it's Karen. Thanks for being on, as always. What did you think about the Lilly? It wasn't surprising, but the Alzheimer's news today, the pricing of that drug, and how effective is that drug really? Karen, I have to be honest. We were talking again, like my little circle of nerdy clinical friends and policy friends. We were saying how interesting the day the op-ed comes out. We have the FDA approval for an Alzheimer's drug, you know, Kilsuna. I'm going to get the name wrong. I always go back to the generic Denanimab.

12:30And we see that there is a pricing that they said, variable pricing, Karen, because the course of treatment can vary depending. Remember, this is a drug for Alzheimer's that they can use early on, but you can stop the treatment when you see a clearing of the plaque on imaging. So it could be on average about$32 ,000 a year. And we know that that's priced just slightly above what the Agihelm drug is. So we have a little bit of a setup, as we discussed earlier, that it's going to be priced in the same range. But Medicare, given the onslaught of people that are expected to be diagnosed with Alzheimer's, early Alzheimer's, this is also a huge cost to the Medicare program.

13:06I was not surprised by the cost. And I will be honest with you, I still think that this just proves that there's something about the amyloid plaque and its relationship to Alzheimer's, because we now have several trials that have reinforced that. In terms of how many people will really benefit from this drug, to your point, it's going to have to be done early. It's intensive imaging. This isn't really a small process. But I think Lilly's drug has a clear advantage because there's an actual endpoint to the duration of treatment. And that was what tended to scare off some of the other kind of treatment modalities.

13:39It seems like it would be in perpetuity forever without really an end in sight. So this might be the most optimistic. I do think it's, but the irony is not lost on me that on one hand, Lily's drug is being discussed and obesity. On the other hand, we're finding a pathway in Alzheimer's. Right. I agree with you. Kasunla is not, it doesn't roll off the tongue. Dr. Patel, thanks so much. Always good to see you, Kavita Patel. Thank you. You know, both of the stocks, Novo as well as Lilly, bounced off the lows of the session during the session. And then Lilly actually got the bigger boost higher on the back of this approval.

14:15But one thing you and I were talking about before the show, I don't know if you saw it, there was this ad that Lilly put in the—it was in— In the hard copy paper. I read the hard copy of the Wall Street Journal. And it was a very odd ad, I thought, that just kept saying we treat diabetes. We may—weight loss medications. Right. Weight loss medications. Diabetes and— And obese. Yes. And I think maybe they knew this op-ed was coming and that that I don't know. It was just an odd ad. I wasn't quite sure what they were trying to do. But maybe they were trying to combat what they knew was coming from Biden.

14:49The Alzheimer's news is once again a case where Lily, you know, now it's Lily and Biogen that really seem to be leading at least here. And the question is, what's the size of this market? And there's different estimates. And again, the estimates will probably grow when you think about the addressable market. I mean, Alzheimer's is kind of its own, I guess, focused treatment. But there may be other reasons that we think that it could be contributing, that could be contributing to Alzheimer's. Five billion market, addressable market. Is that enough for what we think maybe? I don't know what people think has been priced in to Lilly at this point.

15:21But there's no question Alzheimer's over the last few weeks has been a big part of the Lilly move. Yep. So the presidential election about four months away, will drug prices be the new battleground for the candidates? Let's bring in Raymond James' Chris Meekins. He is the firm's Washington health care policy analyst. Chris, great to have you with us. Was this the op-ed today? Was that just political rhetoric? Or do you think that there is something to be concerned about if you are a health care investor? Look, I think that if Democrats sweep, they've told you what they're going to do, which is they're going to expand the number of drugs subject to negotiation.

15:52So if you wake up the day after the election and Democrats control the House, Senate, and the White House, you probably are not going to have a good day. Otherwise, I think what we've seen as a status quo, all the things they said they were going to do really require Congress to act. And I think Congress is unlikely to do that. What they're trying to do is pressure these companies to lower prices before the election so they can claim a win. Senator Sanders, chairman of the Senate Health Committee, has a hearing with the CEO of Novo in September. He threatened a subpoena and the CEO agreed to show up.

16:28And so what they want to do is right before that hearing in September, when a lot of the swing voters are paying attention, they want to be able to announce, look how much we lowered this drug price and held the pharmaceutical industry account. That's the goal here. Do you think that happens? And, you know, what really stood out to me in the notes that you gave to our producer is that if Novo and or Lilly do that, then you're basically giving a win to the Democrats. And if they don't, you're helping Trump. I mean, how do you see this shaking out politically? And what do you think the calculus is at these companies in terms of giving Biden a win at this point?

17:07Yeah, I'm glad I don't run government affairs for Novo or Lily right now. That's for sure. It's your hit if you do, hit if you don't. What I will say is that I believe, based on my conversations, the Trump administration and Trump team is watching. And if Trump happens to pull this thing out, as most of the polls show he's leading right now, you really don't want to be a company that's given a win to the other side. There will be problems if you do that. So I think the company has a tough road to hoe. I think they will try to lower prices a little bit. But you also don't want to set the precedent where every time you're hauled before Congress, you have to cut your prices if you believe they're legitimate prices.

17:49And so next thing you know, pharmaceutical company executives will be in every week if that becomes the new norm. So I think it's a tough situation. I think they probably give a little, but they're not going to give a lot. Chris, thanks so much for joining. So question, as we're looking at the investment landscape going into the election cycle and you really focus on investing the incremental dollar, if you're balancing your portfolio and allocating towards health care, Where would you suggest investing that incremental dollar going into this landscape? Look, the problem with this election is it really is a binary outcome in a lot of ways.

18:26So if you want to hide, hide in medtech and talk to fundamental analysts that cover companies about companies that are well positioned right now and maybe undervalued at this point. But when you look at managed care, you can't just say, well, managed care almost always outperforms a year after the election. So I'll invest there because it really comes down to what each company's enrolled lives look like. Right. If Trump wins, it's good for Medicare Advantage. So Humana is United, CBS is to some degree alignment. If Trump, if Biden wins, then you probably don't want to be there. If Trump wins, you probably don't want to invest in Medicaid.

19:02So Molina, Centene, and nor do you want to be in the Affordable Care Act exchanges because you have these huge expanded subsidies that expire. the end of 2025 unless Congress acts. So that makes an Oscar a little more questionable. Now, if Democrats win and Biden wins, the opposite's true. Those companies are fine. When you look at providers, it's a similar situation. Usually they end up navigating okay, but with the ACA expanded subsidies potentially going away, that makes an HCA and a tenant a little more nerve wracking depending on what the outcome is. So you really are going to have to make an election call if you want to invest in individual companies within health care.

19:43That's the bottom line going into the election. And you've already seen in the last four days after Biden's debate performance, pretty notable shifts in certain names based on what people think is likely to happen. Chris, great to speak with you. Thank you. Thank you, Chris Meakin. So what do you do? You know, Novo and Lilly were seen as the untouchables, quote unquote. I want to put that in quotes clearly, in the health care space. These are the ones that you want to be in. These are the equivalent of the AI stocks. Yeah, I mean, listen, you know, Lilly's trading 66 times earnings and Novo's trading 47 times.

20:18And to the, you know, one of you guys mentioned this. I mean, you know, at the end of the day, you know, what is the TAM? You know, we've seen it kind of move up pretty aggressively over the last six or seven months. And, again, I think it's probably pulling forward some of the excitement about these things and not taking into consideration what competition might look like in the not-so-distant future. And the other point I'd make is that, you know, the XLV and the IBB, I mean, they're kind of sitting out this rally right here. They're pretty much unchanged. They haven't confirmed the new highs in the S &P 500.

20:47I probably don't think it gets much better between now and November 5th. Coming up, weakness all over the retail space. While our traders are flagging the drops in Nike, Chipotle, Dix, Starbucks, and more. That's next. Plus, Fed chair Jerome Powell weighing in on the central bank's rate cut timeline, what he had to say about the fight against inflation. And while he is in the need of a little more confidence, don't go anywhere. Fast Money is back in two.

21:17Welcome back to Fast Money. Some major retail names slipping today. Nike, Decker's and Dick's Sporting Goods all closing in the red. Restaurant stocks Chipotle and Starbucks also down. But the discretionary sector managed a nice gain on the day, led by Tesla's 10 percent move higher. Warned that a little bit later on in the show. But Amazon also helping the group, hitting another all-time high, topping the$200 mark for the first time. So what to make of this divergence in the consumer names, the continued weakness in some of the first ones that we mentioned, Tim? First things first, you better know when you buy the XOY, Amazon and Tesla are 35 percent of it.

21:50And that's not discretionary to me. Discretionary is everything from Decker's to Nike to Lulu to restaurant stocks to CMG to McDonald's. And so you have to understand that if you removed Amazon and Tesla from the XLY over the last six months, you're down 5 percent. If you look at what's going on in apparel, these names have fallen out of bed. If you look at what's going on across discretionary spend and aspirational things, whether it's beauty and whether it's an Estee Lauder, but even some of the better ones, these things are going lower every day. Look at Diageo. Look at the spirits space. space.

22:21This is a two-year chart that is death-defying to the downside. So if you look at Best Buy, if you look at Dick's, I mean, these numbers have gotten soft. If you think about where we were coming out of the last quarter, these things were everybody was saying they could do no wrong. Tim, I know you like Dick's here, but it's had two gaps over the last two quarters to new all-time highs based on better-than-expected quarter and guidance. But look at how it's coming 15 % from its all-time high in just about a week. And so I wonder, you know, I don't like the weakness. I mean, I just want to know what you just mentioned, you know, a whole host of names.