Power Lunch - Pharma Mega-Mergers, Rise and Shein 1/9/24

Episode Date: January 9, 2024

Pharmaceutical giants are shelling out billions of dollars lately to buy promising new drugs. Is this a sign of good financial health, or a problem with pipelines? We’ll discuss.Plus, there’s more and more data coming out on Shein as it prepares for a U.S. IPO. We’ll break down it’s revenue numbers, and where it ranks compared to American retailers. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everyone, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Coming up, major mergers in the drug industry, pharmaceutical giants shelling out billions of dollars to buy promising new drugs from the companies that make them. Is this a sign of good financial health or a sign of problems with their pipelines? Plus, more data coming out on Cheon. As the fast-fashioned company prepares for a U.S. IPO will break down their revenue numbers and how they compare with some of the big U.S. retailers. But first, let's get a check on the markets. off the lows, but we're still down, except for the NASDAQ. The Dow's down a fourth of a percent. The S&P's down three points. The NASDAQ is up about 30. And we mentioned health care deals,

and it's not just in the pharmaceutical space. We've got a tech deal today potentially as well. Juniper soaring on word Hewlett-Packard Enterprises is close to buying the company for $13 billion. It's up 22 percent today. HPE, interestingly enough, down almost 8 percent. Well, we start today, however, with the market as stocks continue to struggle to start the new year. and our next guest is looking for opportunities in areas sensitive to positive economic surprises. Let's bring in Rich Bernstein, Chief Investment Officer of Richard Bernstein Advisors. Rich, welcome and happy New Year. Glad to have you with us.

Hi, Tyler. Happy New Year. So where do you find those sectors, region styles that are more sensitive to positive economic tidbits? What are they? Right. So, Tyler, there's kind of an old rule of thumb, which sounds very obvious, but people forget it, is that the cycle, by definition, is determined by cyclicals. And so when profitability starts revving up, that's because of the businesses of cyclical

companies. When profitability is slowing down, that's also because of the profitability of cyclical companies or the lack thereof in that case. Stable companies are just too stable to cause a cycle. So it looks to us as those profits growth is accelerating. We think growth, profits growth could hit 10 to 15 percent during 2024. And if that's the case, we're going from minus 10 to 15 percent to plus 10 to 15 percent, that calls for cyclical exposure. I would argue in favor of things like industrials, materials, energy, small caps, even emerging markets.

Interesting. And within those areas, if you talk about materials, industrials, industrials can be broad there. Name me some names that would fit into that category. So I think in the industrial category, there's two different ways to look at this. The biggest group in industrials is, of course, aerospace defense. And the aerospace side, obviously, is having some problems. I don't want to name individual companies, but we all know the problems that can go on on the aerospace side. But the defense side, unfortunately, looks like it's going to be a growth industry.

As globalization is contracting, one of the unfortunate sides of contracting globalization is that you get more wars. And so the defense contractors actually look like they could be growth stocks here going forward. very unfortunate, but a reality, so to speak. The other side of the industrial sector, I think, is much more of a more interesting, longer-term play, and that would be anything related to the re-industrialization of America. Tyler, as everybody knows, the United States has a massive trade deficit. That comes now at a point in time where globalization is starting to contract. That's a really bad combination.

We think capitalism will be smart enough and strong enough to reallocate capital to where it's needed in the economy. So we don't think the long-term growth stories are about AI or weaner dogs in the metaverse or something sexy like that. We think it's actually in the re-industrialization of America. Richard, I'm just going to ask you about the tone so far this year. To quote our Bob Bassani, first the Santa Claus rally failed. Now the first five days indicator is negative. Echoes of 2022. I don't know if it's 2022, Kelly, or whether it's the beginning of replay of sort of a 2020 into 2021, where we had a very misbalanced bubble-like market, where we had a series of stocks back in 2000, it was all about TMT, tech media, and telecom. Today it's about the Mag 7 and everything

else being left in the dust. Well, that seesaw eventually does recalibrate, and the other side of the seesaw does very well. And I think that one wants to watch very carefully about the speculative nature of the Mag 7 versus the fundamental story in the rest of the marketplace. You raised something that's very interesting there, Rich, and that is the idea that the market needs a narrative. And the narrative last year was the Magnificent Seven. The narrative a couple of years ago, as you said, was the TNT? What did you go? TMT. TMT. TNT would be an explosive rally. Yeah, things blow up, right. Excuse me. So the market needs a narrative.

I wonder, in light of the fact that we're seeing a lot of M&A in pharmaceuticals, a sector that did not have a particularly good year last year, with a couple of notable exceptions, whether you think that could be part of a narrative in 2024, that sector. Tyler, I think that's a very interesting question. And the reason I bring that up is that in my seesaw analogy, one side of the seesaw is obviously very, very expensive. And that would be the Mag 7, which are very expensive relative to their own histories, relative to their peers, according to growth. They're very expensive. The other side of that seesaw, I would argue, is ridiculously cheap. In some cases, really, really ridiculously cheap, which one would think would spur M&A. So whereas I think some people have argued that maybe M&A is dead, I would argue we may be in the

infancy of an M&A cycle because this other side of the seesaw is so remarkably cheap. Rich Bernstein, always good to see you. Happy New Year. Glad you're with us. See a lot this year. Thank you. Thank you. Thank you too, my friend. Now to shares of Boeing, which are slightly lower as the company investigates the issue which caused a door plug to blow out mid-flight on a 737 max-9. Let's bring in Phil a bow now for more on those reported loose bolts showing up at other airlines, Phil. We don't know how many loose boats were found between Alaska and United. And the terminology has been a little bit different between the two airlines. When we get a better sense of that, we may have a better sense of what the FAA is going to do.

That's one of the developments that we're going to be watching for today. First of all, the FAA has yet to weigh in on final inspections for the grounded 737 max nines. Once that happens, then Alaska and United will be able to do those inspections. But they're in a waiting mode right now. inspections, they're not going to be four to eight hours. I was talking with one person familiar at the process who said, look, this could be 10, 11, 12 hours, so it's going to take a little bit longer. And again, the loose parts were found both at Alaska and at American. Meanwhile, in Renton, Washington, in one hour at the plant where they build the 737 max, they will be

holding an employee town hall. This will be led by Boeing leaders. They're going to be talking with their employees, basically reiterating safety culture, a security. a culture of accountability, quality control, all of the things that we have heard from Dave Calhoun and his top executives for some time. But clearly, that needs to be driven home once again, whether or not new initiatives are announced, that remains to be seen. And as you take a look at shares of Boeing, all of this comes on a day when they actually improved their monthly deliveries in December. They delivered 67 planes. That's an improvement compared to November. And the fourth quarter year over year was better. Deliveries for all of 2023, 528 planes, their delivery targets for all of

2023, they hit them. And that's important because there was some speculation a few weeks ago that they might fall short of their delivery target for 737 maxes, but they hit those as well as the targets in terms of their guidance for the Dreamliner as well. Guys, back to you. A couple of quick questions. The loose parts that are referred to, were those all loose parts associated? with that false door or whatever it is. I heard someone call it a door plug. Others say it's not really a plug. Were all the loose parts associated with that or were they found elsewhere in the planes?

No, they're associated with that. And what happened is both Alaska and United, we're pulling off the panels, getting prepared for what they expect in terms of the inspection process from the FAA. Remember, yesterday the FAA said, this is the process we've signed off. on it. You're not quite ready to go, but this is going to be the process. Now there's been some back and forth between the FAA and Boeing. So both Alaska and United, they're getting their planes ready. Look, they want to put them back into service as quickly as possible. So they were getting them ready for this inspection process. That's when they found the loose parts. Which leads me to

question number two, before the loose parts news broke yesterday afternoon, I believe you said that it wouldn't be shocking to see some of these planes going back into service. Maybe within the week. Do you still feel that way? Sure. Really? I don't know if I feel that way. You know, basically I'm telling you what I'm hearing back from people within the FAA as well as within the airlines. I think there is a bit more caution now. Anytime you have these planes coming out and these reports of loose parts, that's going to make everybody step back a little bit.

And look, the pressure is on the FAA in all of this, Tyler. You don't want to say, okay, do this process, put them back up in the air, and then there's an incident. You want to be as judicious as possible. And I think the loose parts, that revelation coming out has probably made regulators and Boeing as well say, okay, are we absolutely sure this is the process? Yeah, that's right. And I'm sure the airlines, too. I mean, they have a shared interest in making sure that the planes they're flying are absolutely

as safe as they can possibly be. Phil LeBoe, thanks for following this for us. We appreciate it. You bet. All right, we're going to do three-stock launch here in the top half of the program today because of the airline news. Here with our trades is Adil Zaman. He's a partner with Wall Street Alliance Group.

First up, Adil, welcome. We're glad to have you with us. Great to be with you. Fantastic. Let's talk about Boeing. The company, of course, still dealing with those 737-9 max jets. The shares are flat today, down about 10% on the week. The trade here, Adil.

So for us, this would be a sell, Because, you know, this is a company, every time it seems like they've got things back on track, another major catastrophe like this happens and it derails up, right? So they just finished a very strong year with increased plain deliveries, and now investors have to deal with this type of a catastrophe again. We just feel that from an investment point of view, there are so many other opportunities available out there that we would simply stay clear of Boeing. So for us, it would be a sell.

Okay, let's move on to JetBlue then, because that's a lot. a whole other story today. The CEO has announced his plans to step down in February. They're waiting on the judge's ruling on that merger with spirit, of course. They got a downgrade this morning saying shares could go to three. They're just over five bucks right now. What would you do? I would sell, Kelly, because, you know, I sympathize with the CEO, and it was a very tough job. You know, like when you are in the airline industry, it's a razor-thin margins. It's survival of the fittest, right? And you have you need to have a certain amount of scale in order to do well in that business.

And JetBlue simply did not have that scale, right? And also, they are very domestically focused. So they are not really benefiting from the increase in international travel like some of the other larger airlines are benefiting from. And because they don't have a brand loyal customer, they are unable to pass along the higher cost and fuel and labor in terms of higher prices to their customers. So we would say that this is, again, this would be a sell. Speaking of a stock, a company that does benefit from the strength of international travel,

that would be Delta Airlines close now to placing a huge wide-body order with Airbus. Those shares up about a percent today. Adil, your trade on Delta, I think we've got one here that isn't United and isn't Alaska, which may be one of the strongest things going for it. Yeah, I agree with you. I think that this is – so the reason why we like Delta is for the – the exact opposite reasons that we don't like JetBlue, right? So Delta has the scale, right?

It's the largest player in that industry. They have a very niche market focus. So they've figured out they're going to cater to the higher income earners. So this gives them the ability to charge a premium pricing, which their customers are willing to pay for the luxury. It also gives them the ability to be able to pass on the higher costs because their customers tend to be more brand-law. And in terms of international travel, they've benefited tremendously from it, especially traveling

from America to Europe. We, as a family, took two vacations last year to Europe, and the airports were jam-packed. And Delta is benefiting from this trend. So are you saying, I'm curious on this, if I were to take a flight from New York to Rome on Delta, if they go there, Delta would have a higher price than if I were to do that same flight on another American airline? So we feel that, you know, Delta, when we were looking for flights, we felt that Delta was very expensive.

And a lot of times, you know, customers are willing to pay for the luxury. Because their customers do tend to be the higher income earners. So yes, a lot of times the prices would be higher. They also have the largest frequent flyer program of the US-based network carriers, which is also a very high margin business for the company. So they have different sources of revenue. And that's why we are constructive on this one. This one would be our favorite in that space.

That's interesting because Delta certainly does have the reputation of being able to avoid some of the operational difficulties that have affected other airlines. Adil, thank you very much. We'll have you back. Thank you. Thank you. And coming up on Power Lunch, Rise and Cheon. A new report from CNBC.com shows revenue for the Chinese online retailer is a lot more than anyone expected. Could be good news for the IPO. We'll get to the details. Plus consolidation ramping up in the pharma space.

Of the 10 largest biotech deals from last year, 6th came in the fourth quarter. And according to EY, the top 25 companies in the space have more than a trillion in cash to make deals this year, a trillion dollars. We'll discuss where the next big merger could come from when Power Lunch returns. Welcome back to Power Lunge. Fast fashion giant Sheehan's highly anticipated IPO is expected to take place at some point this year. but little is known about how much revenue the retailer brings in right now. CNBC reports she in sales could actually be a lot more than $30 billion annually. That's according to a key partner.

For more, let's bring in the reporter behind the story, our friend, CNBC.com retail reporter, Gabrielle Fon Rouge. Also joining us as fashion launchpad founder and CNBC contributor, Sandra Campos, for some perspective here. Welcome to both of you. Gabrielle, we'll start with you. What have you learned? So there's very little known about how.

how much Sheehan makes, how profitable they are. I mean, they're a private company. They don't actually have to disclose anything. You know, what we know from some reports that came out is that they did $23 billion in revenue in 2022, and they set out to raise that number by 40%. So now the market kind of things that they're making about $30 billion a year. And what we heard yesterday at the ICR conference in Orlando from one of Sheehan's key partners from Authentic Brands Group, who they partnered with last year.

But that number is actually a lot more than $30 billion. Of course, he didn't disclose how much that number is. But, you know, authentic brands is in a position to know. Last year, they started a partnership with Sheehan, where they started selling a co-branded clothing line with Forever 21, which authentic owns. So they have to open their books. And these people know how much they're making. And it seems to be a lot more than everyone thinks. And if that's the case, Sandra, we're putting them in terms of their heft and their size in the retail world on par with the likes of Zara and H&M.

Is that right? Even more so, even greater than that. So right now it's estimated that they actually have about 20% of the fast fashion, the global fast fashion market share. That's pretty substantial being that they were projected to just be selling about $4 billion in 2019. So they've had exponential growth since the pandemic. What is, Sandra, what explains their success? There's a few things.

Number one, they use teen influencers and user-generated content, which are the teen consumers themselves. So it's not just Gen Z, but they were definitely the ones. If you look at just TikTok and how many people are talking about Shee and Halls, it's almost 15 billion views on Shee and Halls. And that's just coming from the holiday time period. So that's one. The second thing is that they've really figured out the supply chain.

They have an agile supply chain that is not really focused on what's happening on the runway and waiting for trend research. They're really focusing on having a lot of designers. that are outsourced. And those designers are constantly pumping up a lot of product, about a 1.5 million styles in an annual basis. And that's about 37 times with Zara and 65 times more than H&M. That said, Gabrielle, there was some focus recently,

I think in the Wall Street Journal, about how it's not as lucrative for the suppliers as it is for the parent company. At what point do you think suppliers might push back? So this is a big issue right now for Sheehan. and in order for them to remain competitive and to be able to continue with this crazy growth that they've posted, is they need to keep those suppliers loyal because that's really their secret weapon. It's called the ultra-fast fashion manufacturer and supplier.

These aren't the typical fast fashion suppliers. These are manufacturers that are able to turn around styles within days, if not just a week or two. And that's also a fresh design as well. So Sheen is able to identify designs that are getting popular on TikTok. online, they send those designs over to the manufacturers and they turn it around really quickly. But there's a lot of competition for those suppliers as well. You've got Timo, which is what Sheehan doesn't consider it a competitor, but many others do. Timo is competing for those very same suppliers. And Timo actually recently sued Sheehan and federal court here in the U.S., accusing

them of mafia-style tactics, accusing them of signing loyalty oaths and things like that, requiring these suppliers to pledge their loyalty to Sheehan and, you know, pledge that they're not going to work with any other competitors. So, you know, but if team is willing to offer a higher price, if some other newer entrants to the market are willing to offer a higher price, then, you know, Sheehan is going to, they might lose some of those suppliers, some of that loyalty. So that's going to be a really big focus for them. And what kind of impact is that going to have on their margin? Sandra, what about... There's so much we don't know about this company. Sandra, what about the quality of these garments? Is it, is it not just fast fashion, but

disposable fashion. How good is it? How disposable is it? And does that disposability then cause there to be criticisms on environmental grounds? Well, absolutely. Well, they have a cohort that have young shoppers that want immediate satisfaction. Regardless of the environmental impact. And I think because of the fact that the price points are so low, you can get addressed for $8, a t-shirt for $4,000, it really already holds a bar at a very low quality standard. You're not expecting a lot when you're paying $4 for a sweatshirt. So that's definitely one thing. The other part is they're definitely having some challenges as it relates to, you know, copyright infringement, some potential labor issues, obviously sustainability as they're feeling much more in terms of landfills. We're getting a lot

more of the landfill conversation going on around Cheyenne. But the customers are still stopping. If the items, Sandra, I'll ask you, and then, and then, Gabri, maybe you can jump in. If the items are that cheap, $8 for a dress, $4 for a sweatshirt, the shipping must cost more than the garments. Sandra? You'd be surprised that there's actually lower shipping rates from China directly consumer,

and they're shipping it direct to consumer from their DCs in China, and they have three DCs in the U.S. as well now. So even within the states, they're able to ship it and still make margins. So they're optimizing their supply chain from a fabric standpoint, where 65% of a garment's cost comes out of the textiles,

they're actually able to optimize that across all of their suppliers. So they're able to get, you know, much better margins that way. Gabby? Yeah, and Tyler, what I'll add to that is that, you know, we've all heard about the de minimis exemption, right? So, you know, items that are being shipped overseas that are less than $800 aren't charged in court duties. And, of course, legislators will say that that's why Sheehan is able to offer such a low price

because many of their packages are under $800. They are being shipped directly from their manufacturers. Shean, of course, denies this and said it's their supply chain that's allowing them to offer this great price. But there's also a misconception here about quality. I've spent the last couple of months reporting on Sheehan. We've talked about this before, but have also been talking to Sheehan's customers. And these aren't people that are coming in and trying out a $4 dress or $4 shirt once or twice. They're buying maybe a $10 dress, a $10 shirt, and they're coming back because,

they're telling me over and over again that the quality is surprisingly good. Price does not define quality. And because of Sheehan's supply chain, the way that they're able to do things, I am surprised to hear it. But these customers are telling me that they're over and over again surprised at the quality. And that's what's keeping them coming back, which is so important. Because you're not just getting these customers once. You're getting them two times, three times, four times.

And then that's not even talking about the algorithms and all the ways that they bring those shoppers in, even when they're not looking to shop. All right, Gabrielle Fom Rouge and Sandra Campos. Thank you very much. Both of you. We appreciate the discussion. And further ahead, Pittsburgh-based space technology firm Astrobotics, inaugural Lunar Mission, major malfunction shortly after launch, problems abounding. This would have been the first U.S. moon landing in more than 50 years. It ain't happening. We'll be right back.

All right. Welcome back to Power Lunch. Let's get a check on the bond market right now. As yields are flat today, seems like everyone is looking ahead to that big CPI report that will come out day after tomorrow. Telly in Chicago. Happy New Year, Rick. Happy New Year, Tyler, indeed. Whether it's CPI or PPI the day afterwards, inflation date, it will be important. But between then and now, supply is the issue. We had a three-year note auction today. Fifty-two billion, and I'm looking at intradate of threes. You could clearly see it one Easter, and we had that drop that established the low yield of the session. But it didn't last long, and as a matter of fact, if you look at the extremes on the yield curve,

let's look at one month of a short maturity like a two-year. And you can see on the right side how much it's been in a tight range. As a matter of fact, every maturity today's range is inside yesterday's range. Now, if you go to the other extreme, on longer dated, look at a 30-year for one month. You can see its yields are a bit more to the upside. That's something to pay attention to. We see that 10-year-note yields are on pace for the fourth consecutive close over 4%. And we see the 2's 10 spread has been trading quite a bit.

in 2024 under 40 basis points. And we also see the spread with overseas boons starting to widen a bit as longer dated treasury yields seem to have a little bit more horsepower towards the upside. With regard to supply 10-year tomorrow, $37 billion, followed by $21,030s. Auctions are everything to the markets right now. We'll continue to monitor. Kelly Tyler, back to you. Thank you, Rick, Rick Santelli.

To Courtney Reagan now for the CNBC News Update. Courtney. I'm going to have to send it back to you guys right now. No problem. Court will come back to you as soon as they tweak the audio. We appreciate it. Courtney Reagan standing by over there in headquarters. After the break, everyone talks about tech dominating the NASDAQ, but biotech also delivering some massive gains. Pretty massive. December marked the IBB's best month since the pandemic, Nadir in April 2020. More on what to expect from that sector ahead in Power Lunge. Welcome back to Power Lunge. I'm Courtney Reagan with your CNBC news update. Let's try this again. Secretary of State, Anthony Blinken, once again

in Israel today, urging the country's leaders to avoid harming civilians as the Israel wages war with Hamas. We want this war to end as soon as possible. There's been far too much loss of life, far too much suffering. Blinkin also made clear the U.S. will reject any proposals to settle Palestinians outside of Gaza. The first attempted moon landing mission in decades has officially been called off. Astrobiotic says because of a propellant leak, there is no longer any chance of a lunar soft landing. The company says the spacecraft is expected to rung an out of propellant in about 40 hours. Much more on this is in a few minutes with space reporter Michael Sheets. And fired CNN host, Don Lemon, is launching a new internet show on X, the

platform formerly known as Twitter. X made the announcement today saying Lemon will host three 30-minute episodes each week covering politics, culture, sports, and entertainment. It comes out Dr. Tucker Carlson, who was pulled from Fox's air on the same day Lemon was fired, started his own program on X. Kelly, back over you. Yes, a raft of launches as they look to expand their media offerings. Courtney, thank you very much. Courtney Reagan. It's a soft landing for the economy, but not for that spacecraft.

We'll talk more about that in a little bit. All right, deals meantime in the pharma space heating up to start the new year, continuing the trend that started late last month. Pfizer recently completed its acquisition of global biotech company, Cgen, in a, I hope I'm pronounced that right, in a $43 billion deal. And Johnson and Johnson, I know I pronounce that right, Johnson and Johnson. Merck and Bristol-Myers Squibb also striking significant deals. Bristol-Myers' CEO, Chris Borner, talked about the value of M&A at the J.P. Morgan

Healthcare Conference yesterday with Jim Kramm. It's an exciting time to be taking over Bristol-Myers Squibb. We are writing the next chapter of this company. We've got a lot of real strength here. We've got an incredible pipeline of recently launched. launching products. I don't think our pipeline has been richer than it's ever been. Never. And we've got real financial strength that has enabled us to go and actually bring innovation into the company from outside. And that's what we've done with these most recent deals.

All right. Let's get some reaction from Evan Seagerman, biotech analyst at BMO. Welcome, Evan. We're glad to have you with us. What do you think these deals are signaling about the drug business broadly and the biotech drug business more specifically? Well, it feels like a breath of fresh air here in San Francisco. The tone is noticeably lighter. Everyone seems to be happy. It really helps when you start off the JP Morgan Healthcare Conference with a few deals. As you said, there were also some deals announced last month. And of course, the big closing of the Pfizer-C-Gen transaction, which everyone was closely watching. So it's really good for this sector because it's not just healthy for the big bioparma names. It's also healthy for the small biotech

names that need funding. It shows investors that there's a path to an exit. Why are these, I can see why the deals are sort of the tonic that the sector needed. But why are companies like Pfizer, Bristol Myers, and J&J, down so much over the past year? Pfizer down 39%. I suppose it has to do with sort of the decline of sales of COVID drugs and COVID vaccines. But what else could it be? There's a lot of nuances here because if you look at something like Lily, it's up massively year over year. But something like Pfizer, you know, they were transitioning away from COVID, trying to reset their revenue base, really kind of misaligned expectations between what management was saying and what investors thought.

Now it's a reset. CGen's coming in. A lot of revenue opportunity there. Bristol, same thing. L-O-E's after L-O-E's after L-O-E, they need to replenish that revenue base. And some of their new launches weren't doing as well as investors at hope. So now they're bringing a new asset, hopefully, to accelerate that. And what about with cytokinetics? So we had Novartis on with Jim earlier. So we heard in the Wall Street Journal's reporting that cytokinics may be taken out by Novartis. I don't cover either one of those companies, but given the reports, it is signs of a healthy ecosystem. I know at the conference, Novartis was down-talk, downplaying it, but that's probably just the game that they're playing right now. I could see something happen. Usually when the Wall Street Journal reports on it, it does end up happening. What, Evan, would you say are the super cycles happening in the healthcare space right now that are driving these deals?

obviously weight loss to the side. We're talking more about oncology. What else? A lot of oncology, a lot in the subset of oncology, radio oncology, you saw that deal that Bristol took out, raised. So these are kind of radiotherapics to treat cancers. What does that mean radio, radio oncology? So that's a very good question. It's basically taking a drug, adding a radioactive particle to it to target it right to the tumor to kind of destroy the tumor. High science, high manufacturing, a lot of interest. I also want to add an inflammation. I believe that the CMO of Merck was talking about doing more deals in inflammation. We saw a lot last year. I cover a company called Morphic. They have an

oral drug for IBD. Data coming next year could also be very interesting for a strategic. Give me a thought on Eli Lilly and I guess Novartis. But first on Eli Lilly, is it the sort of irresistible force here in the space? Well, Eli Lilly is still our top pick in Big Pharma. We do like Lily. We think that Zepbound is going to have a fantastic launch this year. Remember, this is their drug for obesity that was recently approved in November. They're off to the races there. We think that there's a lot of enthusiasm around it, so we're really focused on that. They don't cover Novartis, but, you know, we could see some more deals there, especially with the reports in the Wall Street Journal with cytokinetics and Novartis.

All right, Evan, thank you very much. We appreciate your candor and your ideas. Evan Seagerman. Thank you. Have a good one. Bye now. Yeah, you too, sir. BlackRock announcing hundreds of job cuts. Let's go to Leslie Picker for some details.

Hi, Leslie. Hey, Tyler. Yeah, this is according to a memo that was sent by Larry Fink, who is the CEO of BlackRock, as well as Rob Capito, the president of BlackRock, sent around the firm discussing, quote, as we prepare for 2024 and this very exciting but distinctly different landscape, businesses across the firm have developed plans to reallocate resources. these changes will result in about 3% of our colleagues leaving BlackRock. That amounts to about 600 people based on the number of employees that have been disclosed in public filings. In terms of kind of qualifiers as to why they're doing this, they talk in the memo about the industry changing faster than at any time since the founding of BlackRock. That's thanks to the work of their I-shares teams, ETFs becoming more ubiquitous as what they described to be the performance. vehicle for delivering both index and active investment strategies. They talk about growth coming from a wider range of markets around the world, Europe, Middle East, India, and other markets

in Asia. And then this is something that people have been paying close attention to. Perhaps most profound new technologies are poised to transform the industry and every other industry. A lot of people have been focused on Black Rock as we see the events unfold with regard to the potential spot. ETF, obviously Black Rock, potentially a key player there. I'm told in speaking with a person familiar with the matter that the cuts aren't focused on a particular team. They were broad-based in nature, so there's been a lot out there about the potential for, you know, pulling back an ESG. I'm told that's not the case here that it was actually, they're going to be very broad-based in nature. But once again, the news today that Black Rock is laying off or plans to see a 3% reduction

in its workforce representing about 600 jobs. You can see shares there down about half a percentage point at this time, guys. Leslie, thank you very much. We appreciate it. Leslie Picker. Coming up, more eyes on AI. Microsoft's investment in OpenAI is staring down major antitrust scrutiny in, yes, the European Union. Could the impact be felt across the pond back here at home?

We'll discuss the potential fallout when Power Lunch returns. Microsoft's multi-billion dollar investment in Open AI, could now be the subject of a merger probe in the European Union. Deer Jibosa has more on that for today's tech check, Deirdre. Hey, Kelly. It's only the second week of 2024, and already the antitrust headlines and developments. They have been rolling in. The latest EU regulators are looking into deals made between tech giants and generative AI startups. I actually called out Microsoft's investment into OpenAI. As part of the commission statement, EU antitrust chief,

Marguerite Vestrier, is quoted, virtual worlds and generative AI are rapidly developing. It is fundamental that these new markets stay competitive, and nothing stands in the way of businesses growing and providing the best and most innovative products to consumers. Now, she also happens to be coming to the Bay Area this week to meet with our biggest tech companies and CEOs, including Tim Cook, Senator Pichai.

Now, typically investors, they don't react to antitrust headlines because where the EU has won battles, it usually results in fines rather than major changes in business practices, But there are signs that that may be changing. Apple, for example, has offered to let rivals use its tap-and-go mobile payment system in the face of an EU investigation. And the idea itself, Kelly, that Europe and Washington regulators are taking a harder look at AI deals, that could suggest more aggressive, more nimble enforcers that could actually have a chance of winning a few battles this year. It's been a very tough slog of the last few years.

But a number of them are coming up this year. And even if they don't win concessions, the information that is coming out of these lawsuits is important and could hurt them down the road. And in what ways do you think splashes, you know, or kind of directly affects what they're doing here at home? Yeah. So the European regulators. Well, I mean, our enforcers with Lena Khan and Jonathan Cantor over the DOJ have just become more aggressive. And you have to wonder if that's a response to how effective or aggressive the European regulators have been. But even an example in the Google lawsuit, we found out that Google pays Apple some $18, 19, $19 billion to be the default search engine on the iPhone. And that's just a huge number that its rivals and smaller companies can go after. So even if this information is unveiled here or across the Atlantic, it can help enforcers in either places.

And 2024 could potentially be the year where we see some of that start to affect the businesses. I'm curious, the history of antitrust is that these cases often move slower than the traffic that's over your right shoulder there. Is there a possibility? I mean, if I'm Google or I'm Apple, I might want to slow walk these cases under the thinking that maybe there will be a change in administrations in November or a year from now. They, Tyler, you could have used any example. They move so slow. And even if you do get anywhere, the appeals process can take years and years. But that's sort of my point is that even if you don't get sort of any certainty with these

cases or any concessions that are one, the information that is revealed through them can be damaging. And they can also amount to a distraction, right? I think back in the 90s, when Microsoft was under antitrust scrutiny, it wasn't sort of this one moment where it changed their business practices, but it led to sort of a decade of underperformance because of what those cases did to the company. So you could imagine a similar scenario, I'm not sure, but it's a possibility that investors could consider. Deirdre, thank you very much, Deirdre Bosa. And still ahead. Not quite to the moon and back. Astrobotics first try at a lunar landing falling short after a technical malfunction. No soft landing there. We will get the key details on exactly what happened when Power Lunch returns.

Welcome back to Power Lunch, everybody. Pittsburgh-based Astrobotics inaugural Lunar Mission suffered a malfunction, fatal one shortly after the launch, and the company has. calling off the landing attempt. CNBC space reporter Michael Sheets here with more. What happened, Michael? Tyler, unfortunately, shortly, just a few hours, actually, after launch, they suffered a propulsion failure during really just checking out to see how the spacecraft was doing.

This was a lander that wasn't going to be landing until late February. Now, they've been able to try to get this thing moving a little bit more and try to resolve some of these issues, but they're not going to be able to fully recover it. It's going to start tumbling out of control, probably about Thursday, and they're trying to get as much data as they possibly can off of the spacecraft because the good news is both astrobotic and NASA have upcoming lunar missions. So they're going to have another go out of this either later this year or even in the next year. So this thing is basically just a full write-off. In other words, it's just going to go and tumble in space and tumble in space and it's going to run out of power. What was it intending to do?

In other words, it was going to land on the moon and do what? for whom? So the idea here is that it's essentially a cargo transporter. It's delivering 20 different payloads for a variety of government and commercial customers to the service of the moon. And the idea that NASA is trying to create with these missions is do low-cost delivery service to the moon. And that's kind of a newer idea.

Instead of spending maybe a billion dollars on a really high-tech superpowered lander, they're doing these missions for 100 million. $200 million a pop. And the idea is then instead of having only just kind of the single point failure, you have a bunch of different companies working on missions. And the really key part there is that we have three different American companies, all with landers that are going to launch here in the next year or so. So 2024 is really shaping up to be a bit of an American private moon race.

And aren't we going to see another launch sheets? I thought maybe as soon as next month, different companies, same idea? Different companies, same idea. intuitive machines this time, they're publicly traded stock. And then later this year, we should see Astrobotic go again, as well as Firefly Aerospace, another company near tech in Texas. They'll have their lander schedule for later this year. And I think one really important piece of why we're doing this is it's not just to deliver

cargo because we want to deliver cargo for no reason. It's because also there's this growing international competition. There's an impetus as Russia has tried this last year to land. on the moon and crashed. India just landed successfully the first time. China has repeat missions going back, and there's a Japanese company, IceSpace. They're going to do a second take on their first mission that went last year. So there's a really big driving force to get a presence on the moon, and really a sustainable one, one where we're delivering lots of cargo regularly to the surface. Who's there to receive the cargo, Michael? Well, you have, you know, folks like you and me

might be there someday to just sit down and have the tea we delivered. from Earth, but in the future, it's about trying to build out this infrastructure there. Yeah. Okay. Michael, thank you very much. It's just you worry about the cargo being left there. It'd be vulnerable to theft.

It could fall? It could fall over. Lots of things could happen. Well, Michael, thank you. Go and do yourselves a favor, by the way. Listen to that Jeff Bezos podcast. Likes Freeman. Very interesting about his intentions there.

Move over, Japan. There's a new king in the world of auto exports. That and more. in closing time next. Welcome back. Two minutes left. Let's run through as many stories as we can here. Starting with China taking the crown as the world's biggest auto exporter, taking it from Japan, and Russian sales is a big reason why. According to China's Passenger Car Association, they had a record year for exports, including doubling sales in Russia because most Western automakers left it following the invasion of Ukraine. They're estimating 5.26 million Chinese-made

cars were sold overseas last year, Tyler, a million more than Japan. They were not even a top five player maybe five years ago. It's astounding to me. I mean, I guess you can put an asterisk on it because some of the European makers and other makers have exited Russia, but nevertheless, to be the number one exporter of vehicles in the world? And the impact that they had is the workshop of the world, the past 20 years. We're just at the beginning of what the impact of them as the auto maker of the world could be. And outselling Tesla now in electronic vehicles as well, particularly in Europe where it's very a hot market. All right, Meta says it We'll begin limiting the content teenagers can see on Facebook and Instagram as it faces mounting claims.

Its platforms are addictive and harmful to younger users. The company says the new protections should roll out in the coming weeks, and they are specifically designed to give teens more age-appropriate experiences. It comes after a group of 42 attorneys general filed a lawsuit against META, alleging its products or hurting teens and contributing to mental health problems. I wonder how they're going to proof the users for their age. And I think we all share the skepticism here of, of course, they're going to keep tweaking this, but it's not really going to fundamentally change. Look, the problem is people are spending too much time on their phones, on social media, broadly speaking. There's many degrees of problems within that larger.

If I had one parenting thing to do over with my son, who is now 18, at the point at which he got a phone, I would have had a do-over, would have made sure that he put that phone away or we took it. The minute he walked in from your house at all, home from somewhere. school give me give me a half hour at or something like that we're going to have our work cut out you have to come over and police that i'll do that i'm going to bring you dinner thanks for watching power lunch everybody closing bell starts right now