Barron's Streetwise - New Weight Loss Pill. Plus, Congress and the Disappearing $4 Trillion.

Episode Date: April 25, 2025

In this vacation non-episode, Jack talks about Lilly’s latest trial breakthrough and the mysteries of federal budget reconciliation.  Learn more about your ad choices. Visit megaphone.fm/adchoices

My parents have had a lot of time on their hands lately. At first, it was nice. Hey mom, can you drive me to soccer practice? Sure can. We're having slow cooked ribs for dinner. It was awesome. And then it became a lot. Some friends are coming over to watch a movie. Oh what are we watching? I'll make some popcorn. Thanks to Voila, they can order all our fresh favorites from Sobeez, Farmboy, and Longos online, which is super reliable. And now my parents are reliable. A little too reliable. Voila.

Your groceries delivered just like that. Cold open vacation episode. Hi, Alexis. Hey Jack. Our audio producer, Alexis Moore. Uh, I'm away for a week. We're not going to hit folks with a rerun. We're going to give them, I don't know if I call it a fresh episode.

We don't have, uh, it's not a big interview. We're not going to say too much. rerun. We're going to give them, I don't know if I call it a fresh episode. We don't have, it's not a big interview. We're not going to say too much. It's going to be in the short side. I'm going to talk about a couple of topics that are on my mind or that I've written about recently that we haven't yet discussed on the podcast. No big whoop. Are you enjoying your week off? It's almost too much to talk about.

I just got a truck that came by and delivered mulch. I get I think it's I think 12 cubic yards of mulch. So got a lot of get a lot of big things happening. Twelve cubic yards. Can I get some sort of context? What is that? Like, I think I could dive into it and disappear. It's a lot. Well, maybe not.

Maybe the dogs could the dogs could. OK. All right. I want to current. The dog's current. Okay. All right. I want to talk to you about two things and they both have kind of complicated names. The first one is called Warforglipron. We could just call it the obesity pill. And the second one is called budget reconciliation with current policy baseline. Or you can refer to it how one budget watchdog did recently a gimmick that could explode the debt.

Let's start with the obesity pill. I think a lot of folks probably heard this news already. It concerns Eli Lilly and its stock on this development jumped 14% in a day back on April 17th. We have talked several times in this podcast about the new class of obesity drugs. We've had the CEO of Eli Lilly on. These drugs are transformative. They're much more effective than any drugs like this in the past. People lose profound amounts of weight with these drugs. There are two companies that are by far out in the

lead here, Eli Lilly and Novo Nordisk. These are drugs that are used for type 2 diabetes and they've also proven effective at weight loss. Now they're marketed for both with different names. For Novo Nordisk, the medicine called semaglutid, the main name that people know is Ozempic. That's a diabetes drug. If it's marketed for obesity, it's called Wegovi. Lilly has a medicine called Terzepotide, and that's marketed as Monjaro for diabetes or Zep-bound for obesity. And in both cases, these drugs are being studied

for all kinds of conditions like sleep apnea or heart disease. The companies feel that if they can show the drugs are effective for a wide range of ailments, they'll be more likely to get them covered by insurance. And we've talked in the past about how there have been shortages of these drugs and about how compounding pharmacies have used that as a way to get around patent rules and sell these drugs directly to people.

It's been pretty easy and cheap for people to get their hands on the new class of obesity drugs, even if they're not coming from Lilly or Nova. And now there's an effort to crack down on those compounded drugs. The companies have also made the branded drugs somewhat more affordable. Original sticker price in these drugs was generally over $1,000 per month.

Lilly, for example, has a program now where if you don't have insurance, you can get the medicine for $500 a month. But these are still injectable drugs. And that's important for two reasons. First of all, there are some patients out there that don't want to use needles. And second, when you have injectable drugs, they're expensive to make. They typically have to be refrigerated and that makes transporting them

and storing them complicated. It keeps these drugs expensive. And that makes transporting them and storing them complicated. It keeps these drugs expensive. Lily came out with some phase three trial results from a new pill. It's a medicine called or for Glypron. Let's just call it or fo from here on Bank of America securities rights of the trial results. The data are pretty much a best case scenario in our view on weight loss, blood sugar control, tolerability, safety. They say this promises to be a catalyst rich year for Lily.

This was a trial for diabetes, patients lost significant weight, and their weight hadn't plateaued at the end of the study period, which was 40 weeks. In other words, it's a good indication that these pills can be as effective as the injectable medicines for losing weight for controlling diabetes. There's another study ongoing for obesity in particular UBS writes in the study or fo 36 milligrams saw 26% diarrhea 16%. I probably should have given you some warning that this was 26% diarrhea, 16% nausea, 14% vomiting, and 25% constipation.

I know that sounds bad, right? But you know, it's the way those drug commercials always sound terrible when they come to the part with the side effects. But what they write is they viewed as broadly in line with expectations and it alleviates any concerns with potential safety red flags. UBS writes while diarrhea is on the higher side. By the way, this is shattering this podcast previous record

of mentions of diarrhea of zero. I think we're at three. Let's hold the line at three. I'm going to plant the flag there and that's gonna be the record for all time. It says while you know what is on the higher side. We do not see this materially impacting real-world use given discontinuation rates were limited at four to eight percent

and in line with injectables. Now what I take that to mean is this. Let's say that there's someone out there who's carrying around 50 or 60 pounds of extra body weight. And they have other side effects too. They snore, they have sleep apnea. It keeps them up. Is there at higher risk for heart disease and they're looking at all this and they're saying, I'm taking this drug and the drug has some unpleasant

side effects here. Maybe there's some nausea that goes along with it, but I'll take a little bit of nausea. If it gets me the weight loss and it lowers the risk of all these other conditions that I have. That's what I think that this is saying. And that's why I think even though that list of side effects sounds scary, the fact that only four to eight percent are dropping out of taking the drug. I think Wall Street is viewing that as positive news. UBS also writes there were no hepatic safety signals. I'm pretty sure that means liver. There were no hepatic safety signals in the achieve one study,

which we note as particularly topical with the recent news of competitor Pfizer's denuglipron discontinuation on a potential case of dilly drug-induced liver injury. You don't want that. Novo Nordisk has a GLP-1 pill. GLP-1, that's the class of this new obesity drugs. They have a pill.

It's called Ribelsis and that pill contains the GLP-1 peptide. I'm not going to get into the weeds on this mostly because I barely understand it myself, but here's what I can tell you. A peptide is a large complicated molecule and when you swallow it in a pill, a lot of it gets digested. That obviously cuts into the effectiveness. It makes it difficult to make that pill the equivalent of an injectable drug.

The new drug from Lily is a small molecule. It's less complicated to manufacture. It's not as affected by the digestive system, which means you can make the drug as effective as injected drugs. That's the theory anyhow. It's early on for the results. There'll be more results rolling in from these trials. But the initial reaction from Wall Street shows that investors

think this could mean a big increase in the market for these drugs. B of a rights. Our impression is that Lily's main commercial emphasis with the oral will in fact be an ex-us markets where pricing has to be much lower something that an easier to make oral allows for. Eli Lilly stock is not cheap. At the time of this recording, I show it in the eight thirties, 836 bucks or thereabouts. That's about 37 times this year's projected earnings.

So that's a big premium to the broad stock market. But we've been talking for a few years about how it trades at a premium because of the obesity drugs. And the stock has tripled over the past three years. B of A says the stock is headed to $1,000. Their basic case is, although the stock trades at a premium price, the growth potential is much higher

than it is for a typical drug company. And that is Orfo and obesity pills. I still wanna talk for a couple of minutes about the federal budget. I don't know whether nausea rates for that will be higher or lower than they will in the obesity pill drug, but let's take our chances. How about we take a quick break and we'll come right back.

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This is the Baron Streetwise podcast. I probably should have mentioned that in the beginning. I think that's what people do. Hey, look, I'm a guy with a lot of mulch on his mind right now. I'm also looking out the window. Alexis, I've got, um, I've got a bat box that fell off a tree. I'm not going to go into the whole sad story, but I had some bats that took up a residence in my attic at one point a couple of years ago. And we had, we had a fellow who came over to the house.

I call him Batman. He, uh, he humanely escorted these bats from my attic. And then he put some stuff on the roof to make sure they couldn't come in again. But you know, bats are good to have around because they eat mosquitoes, right? So they keep you don't have mosquitoes. So I said, why don't you put up a couple of bat boxes? He put two of them high up in the trees and no bats. I can't get bats to move in for anything.

I don't know where these bats live, but they don't want to. I put these lovely houses out there for him. One of them even has a little black picture of a bat drawn on it. I was going to say we need a bat signal, but you got it covered. They have no interest. I can't add one of them fell off the tree. So I feel like a guy with two totally empty hotels here. You know, business is not good at the bat houses.

But enough about my significant problems. Let's talk about the federal debt and deficit and budget process. Another significant problem. Well, it is the debt is now a hundred percent of GDP. That's a lot. According to the congressional budget office, we're on our way to 156% of the debt by 2055. It's got people nervous because you can look at the bond market, usually the treasury market, you can say, wait a second, when people get scared of what's going on in stocks or anywhere

in financial markets, they always run toward treasuries. That's the place where they seek safety. So investors can't be too down on our debt and our ability to repay it here in the US. So why are we so concerned about the deficits? But so far this year that has not been what is happening. Investors are getting nervous about their stocks, they're selling stocks, they're also selling treasuries. They've

been flooding into gold, as we talked about. That's a worrisome sign. If the world turns less keen on US treasuries, it'll mean they'll trade at lower prices with higher yields. It'll make they'll trade at lower prices with higher yields. It'll make it more expensive for us to finance our debt going forward. So I think it's worth it to pay a little attention to the budget process and the deficit. I've written about this in the past with different parties in the White

House. It's always a little awkward to talk about this stuff because there's going to be one party out there that says you're singling out my party and being critical of my party. I don't belong to a political party and I think neither party is blameless in running up the debt. Anyhow, I just want to say a few words about what I think is an unfair thing. Don't sniff me for political leanings.

This is just about the math. There were some big tax cuts back in 2017. It was called the tax cuts and jobs act. Some people just call it the big tax cuts back in 2017. It was called the Tax Cuts and Jobs Act. Some people just call it the Trump tax cuts. Maybe you were for them or maybe you were critical and didn't like the way they were being done. Regardless of that, they were done under something called budget reconciliation. That's a way to fast-track fiscal legislation. You can bypass a Senate filibuster. It used to be something that Congress did when both parties shared power, but over the

past 25 years, budget reconciliation has mostly been done during periods of one-party control. Okay, there's something called the Bird Rule, and one of the things the Bird Rule does is it says that you can't use the reconciliation process for anything that permanently raises deficits. As I wrote recently in Barron's, I'm starting to wonder if the Byrd rule is kind of like the Golden rule and that it's more of a suggestion because I see no end of deficits but people in the know assure me that it's an actual rule. So with those 2017 tax cuts they weren't fully paid for which is why parts of them had to be made temporary.

So the cuts for individuals largely expired this year. And Congress is once again using the reconciliation process to try to pass a new budget and extend the tax cuts. It's always complicated to say what tax cuts will cost because some people argue, well, tax cuts create growth and the growth will mean that there are more tax revenues flowing in that will help to pay for them in the future. The Penn Wharton budget model, that's from the University of Pennsylvania,

that estimates that an extension would have to mostly sunset by 2033, but even so it estimates that it would add 5.1 trillion dollars to primary deficits. If you factor in the economic effects and you assume some of that growth, it goes from 5.1 trillion down to 4.9 trillion dollars. If you let the cuts expire, wouldn't you get a hit to the economy? Well, the CBO estimates that higher tax rates would modestly reduce the supply of labor, but at the same time, smaller deficits, they say would increase private investment and

those would have offsetting effects and the result would be quote very small changes to gross domestic product. In other words, they don't think letting the cuts expire would create a big hit to the economy. Those are the choices. Forget for a moment about which one you prefer. And I know that we have Elon Musk and the Department of Government Efficiency that's going looking for cost cuts. They say they found $150 billion of cost cuts so far.

Our friends at the Wall Street Journal calculate 154 billion, not of cuts, but of a spending increase. So there's a discrepancy there, but either figure is tiny relative to $6.8 trillion in total yearly spending. In other words, that's not going to be nearly enough to pay for a tax cut extension no matter what happens. I don't think according to the estimates, but still maybe you like the tax cuts for their own sake fine

Here's the part that I just want to point out the right way to extend those tax cuts is to say look we borrowed a significant amount for these big temporary tax cuts and we'd like to do that again That's the right way. I think the not as right way is to say, you know, those big temporary tax cuts, we've gotten so used to them that they feel permanent. And if you think about them like that, we're not really borrowing more money to extend them. We're just going along with the baseline. That basically explains the difference between the current law approach and the current policy approach. As JP Morgan writes, policymakers wanna use a current policy baseline

for TCJA extension, Tax Cuts and Jobs Act extension, which could mask the debt impact of deficit finance cuts. It's just one word difference, current law baseline versus current policy baseline. But that one word difference allows you to pretend difference, current law baseline versus current policy baseline. But that one word difference allows you to pretend that the additional spending from extending the tax cuts isn't happening. It allows you to scoot around the bird rule, even though you're using budget reconciliation.

It's not clear whether it's allowed under Senate rules. We're going to find out soon. There's a nonpartisan budget watchdog called the Committee for Responsible Federal Budget. They're the ones that have called this a gimmick and said that it could explode the debt. If you can create a temporary program so that you just have to count the spending

in the short term, and then later you can pretend that that was a permanent program all along so we shouldn't have to count the spending going forward. It allows you to really pass anything and ignore the financial consequences. The CRFB says that creates a dangerous precedent. Here's the example they give. Maybe you have a future Congress where the political makeup is different. And maybe that future Congress wants to pass, let's say, Medicare for all.

Forget about whether you think that's a good idea or a bad idea. It's going to cost a lot of money. They say the one year that could cost close to $3 trillion. The CRFB says theoretically you could pass that as a one year program. You could acknowledge a year's worth of the costs. And then after a year, you could extend it using a current policy baseline that would allow you to pretend, hey, this isn't new spending. This is money we've been spending all along and voila, free healthcare.

But of course it's not really free. It would add to the debt. House Speaker Mike Johnson has said the national debt is a big problem. In fact, he called it our biggest problem. The number one threat to our nation right now is our debt. It's not China, Russia, Iran, and North Korea. It's the debt. And we take that very seriously. Congress has kicked the can down the road for decades and we're out of road.

That was from an interview early this year. We're out of road, but maybe it depends on whether we're measuring can miles kicked using a road law baseline or a road policy baseline. I'm not an accountant or an asphalt layer, but I find the distinction ridiculous. This is not about whether Congress should or should not extend the tax cuts. It's just to say that this will be a test of whether Congress even has to say from here on how much it's spending.

What do you think, Alexis? Your, are your eyes watering? Is it the tax talk? What's going on over there? Are you having an allergic reaction? It's allergies. My allergies are really bad. That's a likely explanation, but, uh, all right, I'm out. I'm done.

Thank you for listening to this vacation non-episode. You can subscribe to the podcast at Apple Podcasts, Spotify, wherever you listen. If you have a question that you'd like answered on the podcast, you can record it on your phone. We might answer it. We might not. We might play it on the podcasts. We might not.

You can record it and send it in. Use the voice memo app. You can send it to Jack dot how that's H.o ugh at Barron's comm Thanks, and good luck with your allergies Alexis. I'm sorry for all your sniffling and snorkeling. You got a pill What are you gonna take something for it? I need to get a Zartek dropping a brand name I forget who makes it, but I'm sure their shares are rocketing higher as we speak See you next week