Steve McDonald: Hi, everybody. I'm Steve McDonald. This is your Market Wake-Up Call. Our guest this week is the biotech pharma strategist for The Oxford Club, Marc Lichtenfeld. He's here to talk about why bio and pharma will be the next big movers in the market. Welcome.

Marc Lichtenfeld: Hi, Steve.

Steve McDonald: How are you?

Marc Lichtenfeld: I'm doing great. How about you?

Steve McDonald: I've always wanted to ask you why biotech? Why pharma? I mean, this is the single most difficult sector, and the industries within it are just volatile - up and down. I mean, the FDA basically has a gun at its head.

Marc Lichtenfeld: Well, that's what makes it exciting.

Steve McDonald: You know, kind of balance that out with dividends, but I've always wondered what the motivation is to do this.

Marc Lichtenfeld: Well, there are two reasons, really. The first is very practical in that it's an important sector. And years ago I realized the enormous profit potential that this sector offered. You know, if you come up with a lifesaving drug, the company's going to make a lot of money. It's very different from if you have even the next new gadget or new retail idea - the next interesting brick-and-mortar or online store. It's very, very different. The money just pours into it and they have a tremendous amount of pricing power. If you're the only company out there with a great new cancer drug, more or less you can charge what you want for it. But the other reason was a little bit more emotional in that this stuff is exciting and it matters. It's very uplifting to cover these companies that are trying to cure cancer, diabetes and heart disease. And you know, I used to cover the retail sector at one point.

Steve McDonald: Well that's exciting.

Marc Lichtenfeld: Well, exactly. I mean, I enjoyed it, but how exciting can you get about the same-store sales month after month? This stuff matters. It's helping people, saving lives and improving lives, so I love covering these companies.

Steve McDonald: The J.P. Morgan Healthcare Conference is coming up. Most people don't realize how big this is. This is a big deal, and it's by invitation only, and you have an invitation again.

Marc Lichtenfeld: Right.

Steve McDonald: Who do you know?

Marc Lichtenfeld: I got very lucky a few years ago, about 10 years ago, and was able to get in.

Steve McDonald: And then they stay on the list.

Marc Lichtenfeld: Yeah.

Steve McDonald: Because not everybody goes.

Marc Lichtenfeld: No, and actually what's really interesting about the conference - there's about 9,000 people who attend the conference - but what's more important than the conference itself is what goes on around the conference. Because this has become such a big deal, and every healthcare investor, fund manager, analyst, executive, venture capitalist and anybody who's involved in healthcare - the business or investing - comes to San Francisco for this event. So even if you're not in the conference itself, there are tens of thousands of people who are in Union Square, San Francisco, who are holding meetings in hotel lobbies and hotel suites.

Steve McDonald: These are companies that are doing this?

Marc Lichtenfeld: Companies and deal-makers and just anything you can imagine that has to do with the business of and investing in healthcare is there. There are all these meetings and presentations going on. There are several conferences, including the biotech showcase, which I also attend. And what's amazing is since you have so many of these people around, you just never know who you're going to meet - what you're going to overhear in a Starbucks. I mean, one of my best sources, who has actually become quite a good friend, is a big hedge fund manager who I just happened to get very lucky and sit next to at a presentation. We started talking, hit it off, and now I speak to him several times a year. So it's such a big event. It's just complete insanity down in San Francisco during that time with tens of thousands of people there.

Steve McDonald: Now, the market. Most people know that this market is being driven by the FAANG and technology, but everything I'm reading says that biotech and pharmaceuticals that have kind of lagged - not tremendously, but we haven't seen these giant spikes in the last year - are going to be in the next run. What's driving them?

Marc Lichtenfeld: Well, yeah, I agree. Again, what I was talking about before, you still have pricing power. Even though the government is trying to do something about getting prices down - and I do think they will for some drugs - but again, if you come up with a brand-new cancer drug or a novel way of treating diabetes or rare diseases for which there's no cure, you do have that tremendous pricing power and the market to yourself. So you're going to have just a lot of money coming in and a lot of revenue coming in. Additionally, the FDA, under the new FDA head, Dr. Scott Gottlieb, has made it very clear it wants to get drugs on the market faster. So you're starting to see some approvals happen faster. You're starting to see drugs that maybe did not get approved previously are now getting approved. So these companies are going to be able to generate more and more revenue as this occurs. And lastly, this is actually a very good time for the sector - right before the conference. The two months before the conference traditionally are very, very strong for the sector. It outperforms the market by about three times the S&P 500's return. So from November to the conference is quite strong. There's a little bit of a sell-off after the conference - you know, a “sell the news” reaction. But right now is actually quite a strong period.

Steve McDonald: So buy before the conference.

Marc Lichtenfeld: Absolutely.

Steve McDonald: Thanks so much for being with us.

Marc Lichtenfeld: Thanks for having me.

Steve McDonald: Do you have a miracle drug to talk about this time? You always have one - Metformin. Tell me about Metformin.

Marc Lichtenfeld: Well, it's a diabetes drug that has actually been around for quite a long time.

Steve McDonald: I mean, I'm hearing things like it increases muscle strength, delays the development of cancer and retards arthritis.

Marc Lichtenfeld: And there's some investigation into Alzheimer's as well.

Steve McDonald: Yes.

Marc Lichtenfeld: Again, Alzheimer's is such a tough nut to crack, and nothing has been successful yet. We're a long way from proving that this can do anything for Alzheimer's - but if it can, it will just be tremendous. And whoever does crack that nut - whatever company that is - is going to make a fortune.

Steve McDonald: Yeah, it's going to be something to watch. Thanks again for coming.

Marc Lichtenfeld: Sure, my pleasure.

Steve McDonald: And for everybody here at the Market Wake-Up Call, buy before the conference. Marc said so. I'll see you next week.

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