Nothing like going to one of the largest research conferences in the world and having everyone down in the dumps about their sector. That was the case from the moment I got to JPMorgan’s annual health healthcare conference in San Francisco on Monday to the moment I wrapped up my West Coast tour Wednesday. It felt more like a wake than an industry pep talk — something that happens when the room is full of people whose stocks are sitting near their 52-week lows, while so many of the host city’s tech companies are banging on the roof of yearly highs. That’s what happens when you are the pharma skunk surrounded by the tech garden party. I want to give you a behind-the-scenes look at a conference that’s become more of a dealmaking marathon than an actual dog-and-pony show. It’s such an important conference that I put Lisa Gill, who leads JPMorgan’s healthcare research team, on “Mad Money” to describe what she expected to hear. A preview. I don’t like to put analysts on the show. It’s a CEO-driven show, not an analyst show, because I believe you should have no filter between the companies and you. Why should there be? You need to make up your mind, I don’t want someone paid to do it for you. The conference is gigantic. There are thousands of people there: analysts, hedge fund managers, CEOs, public relations people, bankers, lawyers — everyone you need to put together a deal, and that’s exactly what happens. Every year. Gill boasted about it on the show, talking about how a huge percentage of deals start at the conference. Why not? Everyone’s there. You see people from companies you are interested in. You sidle up. You talk about commonalities. Take it from there. When I first heard this a decade ago, I didn’t believe it. But I have now been making this pilgrimage for multiple years and I can tell you it’s the truth. Not only do deals start here, they end here. I have seen takeover after takeover come to fruition. Here are some of the impressions and observations from this year’s trip gathering. Think of them as takeaways to inform your investing decisions in the days and months ahead. 1. A dark cloud hangs over the industry. In previous years there was a joy to the conference. This year, the large number of police you saw from the moment you got there was a reminder that a prominent UnitedHealth Group executive, Brian Thompson, was murdered in early December at the insurer’s annual investors conference. Sadness met you at the door. There would be no prominent managed care presenters this year. Safer for all. I had a full slate of executives to interview from the get-go. CEOs from Medtronic , Boston Scientific , Cardinal Health , Merck , Biohaven , Abbott Labs , as well as several off-the-record sessions with other leaders of companies — some private, some public. CNBC had an extraordinary makeshift setup in a hotel cafeteria, but before the assassination we had a full-blown studio, meant to be prominent. No need to be prominent now. 2. There are lots of excuses for poor performance … I know most of these CEOs by now and we enjoy each other’s company. We all joked about how poorly the group’s been doing. The list of the excuses is as a long as half my arm but let me spew some: An economy that just won’t quit. An economy that, if it slowed, would be greeted with interest rate cuts, which would drive money into the cyclicals. President-elect Donald Trump’s pick for secretary of Health and Human Services doesn’t believe in the foundation of so much research: vaccines. A group of companies with nothing revelatory to offer. A leaving administration that was incredibly hostile to the group and was able to accomplish the unthinkable: passing legislation to allow Medicare to negotiate prices, via the Inflation Reduction Act— something that actually is deflationary. An incoming administration that seems equally hostile. A sense that Thompson’s murder had a lot to do with a group that’s not allowed to trumpet itself without calling needless attention to itself. 3. … but plenty of positives, too. Once you got one-on-one with executives, there was a solid show-and-tell. Boston Scientific is crushing it and its competitors in atrial fibrillation (AFib). Medtronic is chronically undervalued, something that actually changed for the better as the week went on. Cardinal Health has value and isn’t just a hated middleman (like Cencora and McKesson ). Merck’s Keytruda cancer franchise is worth a lot more than you think. Bristol Meyer’s schizophrenia drug Cobenfy is working and the scripts are stronger than you think. Meanwhile, Johnson & Johnson’s acquisition of Intra-Cellular for $14 billion for its central nervous system franchise meant to treat the same illnesses is not that effective (ouch!). Abbott Labs is going to win the big litigation involving its special infant formula which should add ten bucks to the stock. 4. That includes new innovative products. Once you get away from the stocks, you grow excited about what’s happening. Lots of science, including potentially personalized medicine for hard-to-beat cancers. Lots of healthcare solutions, including Abbott Labs’ consumer biowearable Lingo. The glucose monitoring system was a hit at CES earlier this month and gives you a readout of how your body’s doing from a quarter-sized device. It’s so much better than what you get from your Apple Watch that it should move the needle. 5. Even I got in on the dealmaking (sort of). We bought more shares of Bristol-Myers Squibb this week because of how amazing Cobenfy can be for what amounts to an epidemic of schizophrenia. The drug, which was approved late last year, can be so effective that I even told San Francisco mayor Daniel Lurie that he ought to call Bristol CEO Chris Boerner and figure out a way to get the drug for many of the city’s homeless, as they are rife with this horrendous illness. Hey, I did my own, perhaps sainted, dealmaking. 6. Weight loss drugs are the talk of the town … The wonder drug that still has everyone talking is the GLP-1 franchise owned by Eli Lilly , its popular weight-loss treatment Zepbound and type-2 diabetes drug Mounjaro. (I didn’t meet or see rival Novo Nordisk , which makes GLP-1 drugs Ozempic and Wegovy). Lilly CEO David Ricks preannounced his quarter, which was weaker than expected, but gave an outlook which was stronger than expected. The dichotomy was stark as the stock got clobbered on the fourth-quarter shortfall but would, in a bull market, have been roaring 50 to 60 points. Yes it would have been that great. Another positive: The Biden administration on Friday unveiled the next 15 prescription drugs , including Ozempic, that will be subject to price negotiations between manufacturers and Medicare. That’s a big deal considering there was talk that maybe Medicare wouldn’t cover the weight loss drugs at all. 7. … but are still a major source of debate. The real question revolved around the potential increase of U.S. adults using weight loss drugs to 12%, from the current estimate of 8%. Those users who want to stay vanity thin would have to pay out of pocket, but those with co-morbidities would be covered by any insurer. That’s another reason why the trust keeps Eli Lilly, which now looks like a busted stock. The sheer number of trials for all sorts of things that haven’t been talked about — joints, cancers, dementia, and alcoholism, among others — could drive that percentage even higher. Of course, there were plenty of people talking about how it could bankrupt “the system,” with others claiming it could have save millions. Everyone had an opinion even as I could sense that no one knew anything — especially because RFK Jr. is a believer in diet, exercise and the end of junk food as a way to lose weight, as if obesity is a choice and not an illness. 8. We are sticking with Eli Lilly. I came away with a definitive sense that Lilly stock is undervalued because of the trials going on for so many illnesses. But the stock cast a pall on the realities of the situation, again a bear market phenomenon. It would be so easy to kick this one out of the trust for a huge gain. But I am stubborn and want to buy back the substantial amount of shares that we sold. CEO Ricks is terrific. His confidence is palpable. He admits he screwed up the launch of the GLP-1s. Very few CEOs would ever cotton up. He knows that the sheer size of the demand and the convoluted way that they were distributed via the middlemen, chiefly Mckesson , was a problem. It didn’t help that Hims & Hers and other outfits were allowed to make and profit from knock-off versions of the drugs when there was a shortage from Lilly (The FDA determined in December that there is no longer a shortage and those compounders have to wind down operations in the coming month or two). It’s a total mess. I think everything will be figured out in 2025, so the estimates will prove low. Lilly is spending $20 billion to create manufacturing space. That’s a huge competitive advantage. Don’t forget the rest of the world. Lilly hasn’t. The numbers could dwarf what people expect. 9. Cardinal and Abbott should be higher. I was struck by how Cardinal’s generic drug-making business could be gigantic and is not priced into the stock, which trades more like a low-margin distributer than a manufacturer. Abbott is particularly aggrieved because the market is treating all litigation like it is equal and that means this fine company’s stock is kept back by the dreaded Johnson & Johnson talc powder analogue, even as that will ultimately be resolved for less than what was expected by Wall Street. (The company’s $8 billion proposed settlement would end tens of thousands of lawsuits alleging that its baby powder and other talc products caused cancer.) So many are worried about the loss of exclusivity for so many drugs, that the patent cliff is too great. I don’t share that pessimism. 10. Opportunities abound. The execs are a cerebral group. They know that they are out of favor. They’ve been there many a time. They are prepared to handle it even as the biggest wild card, of course, is Trump himself. Is he pro-business for real? Is pharma a real business to him? Does he mean it when he says the middlemen take more than they should? It’s certainly true from what I can tell and Rob Davis, the self-effacing Merck CEO, is willing to call them out on it. There’s a lot of rancor there and it seems untenable if Congress was to examine the situation at the behest of the big drug companies. I know the rap on these execs. They are just salespeople. They don’t develop anything. They have plenty of scientists. I see it up close because I am developing a drug with Biohaven that has yet to be announced. Scientists galore at that company. But they are the first to admit that they see so many opportunities at this conference — who can resist? In the end, isn’t everything for sale? (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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Dave Ricks, chair and chief executive officer of Eli Lilly and Company speaks to the Economic Club of New York in New York City, U.S., March 12, 2024.
Mike Segar | Reuters
Nothing like going to one of the largest research conferences in the world and having everyone down in the dumps about their sector. That was the case from the moment I got to JPMorgan’s annual health healthcare conference in San Francisco on Monday to the moment I wrapped up my West Coast tour Wednesday.