Transcript: Tuesday, December 17, 2013

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you in part by —


GlaxoSmithKline becomes the first major drug company to quit two of the industry`s most common and controversial practices — the way it promotes its products and compensates its sales force. Will rival companies follow?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Best medicine. Why researchers are calling on consumers to toss their vitamins? But what does that mean for the companies that develop and sell health supplements?

GHARIB: And, wasteful spending. Three hundred million dollars on a blimp?
Hundreds of thousands creating a cartoon. We have some of the surprising ways Congress is spending your money.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, December 17th.

MATHISEN: Good evening, everyone, and welcome.

Major news affecting two facets of health care in America tonight.

First, one of the world`s biggest drug makers changes in a fundamental way how it`s products are marketing and ends a decade`s long practice in how it compensates its sales force.

And second, President Obama still trying to get the Web site working right, calls in tech support — very expensive tech support. He met today at the White House with some A-list executives in technology from Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) and more to get their advice on how to fix that problem-plagued portal.

GHARIB: Well, the big drugmaker Tyler just mentioned is GlaxoSmithKline.
It`s bowing to end to pay doctors who prescribed and promote its products.
So, how transformational is this change and what does it mean for Glaxo?

Sara Eisen has the story.


SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Glaxo is breaking the mold. The British pharma giant is the first to announce it will stop paying doctors to promote drugs.

The producer of top selling medications Paxil and Flovent (ph) and consumer products like Tums and Aquafresh is also changing the way it pays its sales representatives. It will no longer tie its compensation to the number of prescriptions doctors write, rolling out globally a program piloted in the U.S.

The company says it`s been a competitive advantage because health care professionals appreciate the transparency. Glaxo CEO says in a statement the new changes are designed to bring greater clarity and confidence whenever we talk to a doctor, nurse or other prescriber, it is patient`s interests that always come first.

BARBARA RYAN: There are good reasons the industry used physicians as their advocates when these things are connected with direct payments, that`s when you have the introduction of conflict of interest.

EISEN: But Glaxo may be also trying to repair its reputation. It`s a target of an ongoing corruption investigation in China where the drug makers accused of bribing hospitals, doctors and officials. And last year, Glaxo paid a record $3 billion fine in the United States to settle acquisitions that marketed drugs for unapproved uses.

In the past few years, other drug companies including Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE) and Merck (NYSE:MRK) have paid big fines, after being accused of questionable marketing practices. One reason analysts say other companies will follow Glaxo`s lead.

RYAN: Over the next two years, I think we`re going to see the process by which pharmaceutical companies promote their products through medical education and with the input of physicians will change somewhat.

EISEN: One big reason, the Affordable Care Act will require drug companies to disclose how much they are paying doctors every year. This could push doctors and pharma companies to accelerate these changes.

RYAN: Clinical meetings and boondoggles, those have really been cleaned up dramatically over the last, I would say, five years. And I think the industry is trying to gain the reputation that they should have, which is that they provide tremendous value to society.

EISEN (on camera): Glaxo is taking a big first step. Now, pharma watchers are waiting to see which companies will follow.



MATHISEN: Our next guest tonight has been very critical of the drug industry`s marketing practices over the years. He`s Dr. Jerry Avorn, professor of medicine at Brigham and Women`s Hospital and at Harvard Medical School.

Dr. Avorn, welcome. Good to have you with us.

Do you think Glaxo is doing what they are doing because they suddenly got religion or because they got caught?

AVORN: Well, it`s very hard for me to know what their motivations were. I think it is a good step in the right direction in that it`s much better for doctors to learn about drugs from some unbiased, non-commercial source of information rather than from a doctor who`s being paid by the drugmaker to teach them about how good their products are.

As to why — hard to know. It`s not been a good year for Glaxo as your report indicated, and maybe they are trying to take the high ground to be in the media for something good that they did instead of something bad that they did.

GHARIB: But, Dr. Avorn, maybe it`s not good to pay the doctors, maybe the business model market has changed, that you can go direct to consumer. We see all these ads on now TV promoting all kinds of drugs.

So, isn`t it more they can go direct to the consumer?

AVORN: Well, there is a lot of that going on and as you know, we`re one of two countries on earth, the other being New Zealand, that allows direct to consumer ads of prescription drugs. And I don`t think that`s a great step forward, because these are issues that are too complicated to fit into a 30-second or one-minute commercial on TV, and to the extend they are doing that, that may be a way to market the drugs. It`s probably not the best way to market drugs.

MATHISEN: Those ads of prescription drugs are mostly disclaimers it seems to me, unless the selling points. How — do you have perspective on how this is likely to affect Glaxo`s sales, its revenues?

AVORN: It`s going to be very interesting to see how this plays out in terms of sales because on the one hand you can probably sell more drug if you completely control the message, if the doctor who`s giving the lecture or continuing education course is being paid by the company and often, a lot of people don`t know, the slides and script and content of that talk is provided directly by the company, as well. And so, if you`re doing that, you can probably manage to make a better sales pitch than if you are having a doctor who may be independent and is coming to this just as an expert say what she or she thinks. That may not be as good for sales and it will be interesting to see what effect it has.

GHARIB: Doctor, I understand —

AVORN: Better for patients, though?

GHARIB: Uh-huh.

AVORN: I was going to say it`s better for patients.

GHARIB: OK, I was going to ask you, you know, you`ve made a career on educating doctors how best they can prescribe medications to their patients. What else would you like to see happen? Other improvements would you like to see happen in terms of transparency and in terms of best practices for patients?

AVORN: Well, I`d like to see doctors being able to get information about drugs primarily from sources that are not the drug makers. We certainly can afford that considering what we`re paying for drugs in this country, which is way more per capita than any other country, and it would be nice if the kind of work that many groups including ours are doing, which there`s folks who are unbiased experts who are able to go out and teach doctors about the evidence behind the drugs without any particular ax to grind.

If that was a more widespread practice instead of having to have doctors rely on company sales reps, whether they are folks whose are sales representatives or doctors paid by the company, that`s just not the most efficient way for people to learn about what works and what doesn`t.

So, I`m hoping we`ll see more of that going forward.

MATHISEN: Where do we stand on the question of paid research? In other words, where doctors are paid — where the research is funded by a pharmaceutical company, medical device company. Where does the state play on that?

AVORN: I think it`s important to make a big distinction between the good research funded by a company versus sales or infomercials or dinner events that are funded by a company.

We have a model for better or worse that clinical trials are funded by companies and as long as those trials are well-done and rigorous and not set up to get a predetermined result, then that can be useful. We just need to make sure the studies are well done and not setup in a way that`s just kind of a marketing exercise.

MATHISEN: Dr. Jerry Avorn, thank you very much for being with us tonight.

AVORN: You`re welcome.

MATHISEN: Professor of medicine at the Brigham and Women`s Hospital and at the Harvard Medical School.

Well, the problem-plagued Web site is getting help.

The Obama administration named Kurt DelBene, a top executive as a senior advisor to Health and Human Services Secretary Kathleen Sebelius. DelBene has got a big job ahead of him, of course, is charged with fixing the portal with less than a week to go before a deadline for buyers to lockdown insurance coverage that could begin on January 1.

GHARIB: Also today, the White House turned to the who`s who of technology for some advice on how to repair its health insurance exchange Web site.
Most of that meeting turned out to be focused on the spying scandal and national security and overhauling the way the government conducts surveillance.

Eamon Javers joins us now with more on this meeting, who was there and what, if anything, might have been accomplished.

So, Eamon, let`s just start off by what did the CEO hope the White House would do here?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, what the CEOs are telling us is what they would like to see here is the White House and United States government allow them more transparency, more ability to tell their customers, that is Twitter, Facebook (NASDAQ:FB), Google (NASDAQ:GOOG), services that we all use, to tell their customers exactly how often they are turning over information to the United States intelligence.

Right now, they are not allowed to reveal some details about how often they cooperate with U.S. intelligence. They feel like this would go a long way to alleviating some of the concerns that customers have in the wake of the Edward Snowden disclosures.

MATHISEN: That`s what these CEOs were looking for. Did the president make any offer? What did he say?

JAVERS: Well, our understanding, Tyler, is that this meeting, which was an unusual one by White House standards — about two hours and 45 minutes long with the top figures in global technology. At this meeting the president more or less took a listen-and-learn approach. He wanted to hear their ideas for what they would suggest that the White House do here. Of course, the White House is wrapping up an overall review of its intelligence gathering capabilities and just figuring out exactly what changes it wants to make, if any, in the way the NSA gathers information around the world.

GHARIB: One thing that was confusing to all of us, is we thought this meeting at the White House was going to be mostly about the health care website, and then it turned out that they were talking mostly about this NSA stuff. So, you know, what was all that about?

JAVERS: Well, it was interesting. The White House sort of billed this as a conversation with maybe some other things tacked on at the bottom. In the end, this was very much an NSA conversation. The CEOs came today to the White House. They wanted to talk about spying by the United States government. The White House really wanted to frame this as a conversation about technology in a larger way. We`re told the first 45 minutes of the conversation focused on and the website and technical issues, but the president didn`t come in until after that conversation was over, and then they had two hours on the spying issue.

MATHISEN: All right, Eamon Javers, thanks very much.

On Wall Street, traders were in a sort of a holding pattern today, with stocks trading in a narrow range all session long and ending slightly lower ahead of the Federal Reserve`s decision on whether to taper its stimulus measures. Let`s take a look at how the major averages fared today. The Dow down nine points, the S&P and the Nasdaq both lower by five.

GHARIB: More now on that Fed meeting. Fed Chairman Ben Bernanke arrived at the nation`s central bank in Washington this morning for the start of the final policy meeting of the year. Voting members will decide whether the time is right to begin winding down the Fed`s $85 billion a month bond buying stimulus program, and just how much tapering the economy and the markets can handle.

That decision will be announced tomorrow afternoon.

MATHISEN: The Senate is closer to a budget deal. The bipartisan proposal for a two-year federal budget which already passed the House last week cleared a key procedural vote in the Senate today, all but assuring passage in the upper chamber as early as tomorrow.

GHARIB: 2013 was a busy year for Wall Street regulators, and a lucrative one. The Security and Exchange Commission filed almost 700 enforcement actions through September of this year. That`s a 7 percent fewer than the year before, as investigations from the financial crisis tail off. But sanctions and settlements from those actions totalled a staggering $3.5 billion, that is 10 percent more than last year.

MATHISEN: The housing market has seen remarkable gains this year, but millions of home owners are still under water in real estate. Real estate watcher CoreLogic reports that in the third quarter of this year, there were nearly 6.4 million homes, about 13 percent of all homes with mortgages, where the homeowner owes his or her bank more than the house is worth. But that is lower than last year, and CoreLogic predicts that number will continue to decline.

GHARIB: But home builders are more confident these days. A new survey from the National Association of Home Builders shows sentiment ticked to a four-month high in December, and that`s thinks to a recent bump in new home sales.

MATHISEN: And still ahead, why the best medicine may be ditching your vitamins and eating your peas. Details on a new study and what it could mean for the companies that develop and sell nutritional supplements.


MATHISEN: AMC Entertainment is expected to price its IPO tonight and begin trading tomorrow. The company hopes to raise more than $350 million. It`s expected to trade on the New York Stock Exchange under the symbol AMC. Our Julia Boorstin takes a looks at what some investors might find appealing about this company.


JULIE BOORSTIN, NBR CORRESPONDENT: Movie fans flock to AMC Theaters for popcorn and the latest flicks, but will they want to buy a piece of the company? That`s what we will see when shares of AMC Entertainment Holdings, 80 percent owned by Chinese entertainment conglomerate Dalian Wanda Group, start trading Wednesday morning.

ERIC HANDLER, MKM PARTNERS MANAGING DIRECTOR: AMC is the second largest operator in the United States for theaters and screens. It is — it has
been around for a while, and has, you know, a solid large market presence.

BOORSTIN: AMC has advantages, it`s good at getting its moviegoers to pay more, with the highest average ticket price and highest compression (ph) sales of the major chain, and it has more IMAX theaters than its competitors.

So, how did AMC`s financials stack up against its two biggest rivals, Regal and Cinemark? It`s the most leverage with 2.2 billion in debt and it has the lowest return on invested capital of the group.

Now, AMC is investing to make theaters more appealing with reclining seats, leg rests, dine-in theaters with seat side food service, as well as bars and lounges.

HANDLER: These are investments that Regal and Cinemark have both been making over a couple of years. AMC has been left behind a little bit, so they have a little bit further runway, just because they haven`t been able to have access to capital that the other two players have had. So they are starting their investment face right now.

BOORSTIN: AMC is hoping its customers will invest in its future, inviting
2.5 million members of its ticket loyalty program called Stubs to buy as little as $100 worth of shares fee-free to a start up called, which gives individuals access to IPOs.

This could be a savvy marketing move for AMC. If customers become shareholders, that could give them reason to be loyal to AMC rather than pick a screening based on schedule and location.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


GHARIB: 3M (NYSE:MMM) is buying back 22 billion of its shares and increasing its dividend by more than a third, and that`s where we begin tonight`s market focus.

The Scotch tape and Post-It note maker will span the repurchase over the next five years and then to top it off, 3M (NYSE:MMM) also gave a 2014 outlook that surpasses estimates. Shares rose almost 3 percent to $131.39.

Microsoft (NASDAQ:MSFT) won`t be picking a new CEO until next year. The director in charge of the search for the new leader said Microsoft`s board will announce its choice in the early part of 2014. Meanwhile, Steve Ballmer, who`s been CEO since 2000 is planning to retire next year.

Shares were slightly off to $32.52. If you`re a Facebook (NASDAQ:FB) user, video advertisements are set to appear on your newsfeed starting this week.

Facebook (NASDAQ:FB) is rolling out ads that will play automatically on phones and computers. The move might help the social networking giant take part in the huge TV ad market. Shares of Facebook (NASDAQ:FB) were up almost to $54.86.

AT&T (NYSE:T) is selling its Connecticut operations to Frontier Communications (NYSE:FTR) for $2 billion. The country`s biggest phone company said the proceeds from the deal will help expand its 4G LET network, access to more people and help grow with Internet and video services. The deal won`t go through until its reviewed by regulators.
Shares were down a fraction to $33.85. Meanwhile, Frontier soared, up more than 8 1/2 percent to $4.78.

MATHISEN: Higher chicken prices and lower chicken feed cost helped farms grow earnings in the company`s fourth quarter. The company`s profits more than quadrupled. That`s no chicken feed but net income did miss estimates by a lot, and that disappointed investors which sent shares down 3 percent, to $68.38.

Shares of Rockwell Medical plummeted after Brim Capital gave the pharmaceutical company a sell rating. The firm`s analyst said he doesn`t expect Rockwell`s new anemia drug to be approved by the FDA. He also cited stagnant sales and flat future growth as reasons for poor rating. That will do it to you. Shares tumbled almost 20 percent, $10.80, the close there.

And Target (NYSE:TGT) also took a big hit today after the drug developer said it would stop working on an experimental drug. In mid-stage trials, the drug, which was supposed to treat schizophrenia and Alzheimer`s disease, didn`t meet the company`s goals. The stock slumped more than 33
1/2 percent to just $3.95.

GHARIB: We have a recall to tell you about. The Consumer Product Safety Commission is recalling the electric chargers for the H.P. Chromebook 11 laptop computer. The recall comes after nine reports of the charges being prone to overheating and even melting when plugged into the laptops.

The manufacturer Google (NASDAQ:GOOG) and Hewlett-Packard (NYSE:HPQ) pulled them from store shelves in November.

MATHISEN: Well, if you`re one of the millions of Americans who take a vitamin supplement every day, this could be a tough pill to swallow. A new study shows that vitamin pills may have no benefits to your health, and may even pose some risks. So, should we toss out all those B-12s? And what could this mean for the vitamin industry?

Seema Mody has more.


SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Many Americans take vitamin supplements to compensate for a poor diet and to improve their overall health, but a new study indicates that the theory may be wrong.

DR. EDGAR MILLER, JOHNS HOPKINS MEDICINE: I generally don`t recommend vitamins. I recommend healthy dietary patterns and regular exercise, because it`s unnecessary. And even in the setting of poor diet, it doesn`t seem to have benefits.

MODY: Dr. Miller and other researchers co-wrote a bold editorial in the Annals of Internal Medicine, writing that supplementing a diet of well- nourished adults with most minerals or vitamin supplements has no clear benefit and might be harmful. For example, researchers found that the beta carotene increased incidents of lung cancer among high risk patients like smokers.

Vitamins may also not ward off chronic diseases.

MILLER: I think many people in their mind are thinking that it`s an insurance policy against chronic disease, but this is what these studies are showing that it`s not. So you can save your money and maybe buy more fruits, vegetables, low-fat dairy.

MODY: The GNC Holdings, Nu Skin, Vitacost, Vitamin Shop, and Herbalife
(NYSE:HLF) also have exposure to the vitamin and supplement industry, which has been growing at a fast rate.

Research firm Eurostar expects it to reach $28 billion in sales by 2017.

(on camera): And analysts that I spoke to don`t see demand for vitamins decreasing any time soon. The research team at Goldman Sachs (NYSE:GS) recently wrote that supplements provide consumers a low-cost alternative to traditional health care and that younger consumers will be a driver of future sales as this segment of the population has increasingly focused on their physique than in years past.



GHARIB: Coming up, 1 million for a bus stop, millions more for crystal steam ware. Well, that`s how Congress is spending tax dollars and why one senator says enough is enough.


MATHISEN: This weekend`s massive storm which dumped ice and up to a foot and a half of snow from Missouri, all the way to Maine, kept millions of would be shoppers out of the country`s malls. The retail watcher ShopperTrak reports that the number of shoppers at the nation`s brick and mortar stores this past Saturday — get this — plunged nearly 26 percent from the same day a year ago.

GHARIB: Nearly a third of all Americans will be hitting the roads this holiday season. AAA predicts that almost 95 million people will be traveling at least 50 miles from home between this coming Saturday and New Year`s Day. That`s more than last year with nine out of 10 travelers driving, the rest going by air.

And here`s something that should help out — gas prices are lower right now than they were a year ago.

MATHISEN: Well, one thing that never appears to head lower is wasteful government spending and there was plenty of this past year, highlighted in one senator`s annual report of dubious federal outlays called the “Wastebook.”

Hampton Pearson has more.


Calling out Congress for not making the tough choices when it comes to cutting federal spending, Oklahoma Senator Tom Coburn`s latest “Wastebook”
highlights $30 billion worth of questionable government spending this year.

SEN. TOM COBURN (R), OKLAHOMA: My contention is had Congress been focused on doing its job of setting priorities and over-sighting and cutting wasteful spending, we could have avoided both a government shutdown and the budget deal that we`re now considering, which actually grows the government and raises the burden on the American taxpayer.

PEARSON: The headliner, the Pentagon`s decision to leave $7 billion worth of military equipment behind as troops pull out of Afghanistan.

There was also the Army`s mega blimp, a $300 million project halted this year intended for use in Afghanistan, but in three years of development, it made one trip, last thing 90 minutes over New Jersey.

Another $390 million spend by NASA on the green ninja, a cartoon super hero created to motivate kids to take action regarding climate change, in the same year when budget cuts grounded manned space flights for the foreseeable future.

Calls to the Pentagon and NASA for comment were not returned, but Coburn says much of the questionable spending is tied to the ability of government contractors to maximize profits at taxpayer`s expense.

COBURN: Until they have capital put at risk, you`re never going to have — they know how to control cost, but they also know how to milk the system.
And now, there`s no penalty for milking the system and no reward for controlling cost.

PEARSON (on camera): Senator Coburn unveiled this year`s edition of the “Wastebook” just moments after voting against cutting off debate on the budget bill, because he says Congress simply doesn`t have its eye on the ball.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.


GHARIB: And finally tonight, after 21 straight drawings without a winner, tonight`s jackpot in the mega millions lottery could set a U.S. record.
Officials say a last-minute buying frenzy could push the prize now estimated to be $630 million much higher. We spoke with some of those lottery ticket buyers asking what they plan to do if they won that much money?


UNIDENTIFIED MALE: I want a chance just like everybody else.

UNIDENTIFIED FEMALE: Too overwhelming I think to win it all.

UNIDENTIFIED FEMALE: I`m very blessed, but money-wise, no.

UNIDENTIFIED MALE: Nothing like a dream. They say you got to be in it to win it, and I`m in it.


GHARIB: Now, if you`re playing tonight`s game, good luck. The drawing is at 11:00 Eastern Time.

Tyler, I know you haven`t bought your ticket but the ads are in one and 259 million. Good luck.

MATHISEN: That`s — I`ll take those odds.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib, thanks for joining us.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well.

Have a great evening, everybody. We`ll see you back here tomorrow night.


Nightly Business Report transcripts and video are available on-line post broadcast at The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.


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