Transcript: Monday, March 24, 2014

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

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Biotech blown out. A second straight sell off by the group slams the NASDAQ. So why did the once red hot sector cool off?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Clock’s ticking. One week left to sign up for Obamacare’s health plans but the rocky launch has some states already scrambling for the next deadline.

GHARIB: And, all but lost. Malaysia authorities concede the missing airliner is likely at the bottom of ocean.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for March 24th.

MATHISEN: And good evening, everyone. And welcome.

Biotechnology already known for some breakthrough therapies, it may prove to be one of the most exciting businesses of the 21st century. Its promise: medicines that could improve and save lives of millions of people. So far this year, biotech stocks with names like Biogen Idec (NASDAQ:BIIB), Celgene (NASDAQ:CELG), Gilead Sciences (NASDAQ:GILD), Amgen (NASDAQ:AMGN), had been among the market leaders, especially on the NASDAQ.

But for the past two days, not so. They’ve gotten whacked hard, down sharply on Friday, partly no response to reports an influential congressman had questioned one company’s drug’s pricing. Those stocks tumbled again today.

As you can see, the NASDAQ biotech index was off 3 percent today alone. That had a big impact on the markets overall, which were able to close well off the lows of the session. The Dow up as much as 80 points as one time, down as much as 87, finished the day just 26 points lower. The NASDAQ, though, a steep dive there, down by 50, more than a 1 percent decline. The S&P lost five.

Sheila Dharmarajan now taking a closer look at what’s driving the selloff among the biotechs.

(BEGIN VIDEOTAPE)

SHEILA DHARMARAJAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The sell offs started last week after congressional Democrats sent biotech bellwether Gilead a letter, asking for more information about its pricey drug to treat hepatitis c. The drug Sovaldi cost approximately $84,000 for 12-week treatment, making it one of the most expensive drugs in the country today.

While experts don’t believe that the inquiry will have a near-term impact on drug pricing, investors did become concern that there will be more scrutiny on the entire industry and its pricing practices. Over the past two sessions, the Arca Biotech index, a commonly followed measure of biotech stocks has fallen as much as 7 percent, making it the worst two-day losing streak since August 2011.

It’s a notable drop for an index, which is one of the best performing asset classes in the U.S. stock market. In 2013 biotech stocks as a group grossed more than 60 percent and continued to pose double digit gains this year.

Now, despite the recent selloffs, several Wall Street analysts do remain positive on the biotech stocks. (INAUDIBLE) notes that the fundamentals especially for the larger companies remain solid and JPMorgan (NYSE:JPM) says that growth prospects still remain above the market.

For NIGHTLY BUSINESS REPORT, I’m Sheila Dharmarajan.

(END VIDEOTAPE)

GHARIB: Joining us now to talk more about biotech, Geoff Porges. He’s senior biotech analyst at Sanford C. Bernstein.

Geoff, you know, the sell off as Sheila just reported was triggered by the words of one congressman about one company. Is this an overreaction, this sell off? Is it justified?

GEOFFREY PORGES, SANFORD C. BERNSTEIN SENIOR BIOTECH ANALYST: Certainly, there is a lot of alarm about the letter from Mr. Waxman on Friday and potential risks to the biotech pricing model. We really don’t think that there is much to be read into the letter and the ability of Congress to dictate prices to pharmaceutical companies like Gilead really doesn’t exist in the current legislation.

So, we are terribly concerned about that, however, it does signal confidence in the group and how the stocks are traded is certainly instructive for those of us who’ve been very close to what’s been a remarkable rally in the group over the last two years.

MATHISEN: So it’s down, oh, single digit in percent terms over the past couple days, Geoffrey, but where do you think it ends? Is there more decline to go here?

PORGES: Yes, we had about, give or take, five to 10 percent correction. The best performing stocks have been the largest caps, the worst performers have been sort of early stage technology-based companies.

These — the corrections probably in this industry can be as much as 20 to 30 percent, so when we really see the selling pressure, you can see another 10 percent to 20 percent before we’re done and what you saw today is probably how it plays out. The largest caps the most defensive, the smallest and emerging companies will be hit hardest.

GHARIB: So, Jeff, what do you do if you any for example, a biotech ETF? What should you an investor do, sell it or hold on for now?

PORGES: The biotech ETF has been a great way to play the sector over the last two years. Most of them have more or less double, give or take, and a lot of upside has come from the largest cap names. I would be making sure that portfolios are skewed towards those large caps. Something like Amgen (NASDAQ:AMGN) today only down 2 percent in the face of the big selloff in the sector. Even some of the other large cap names, the Celgenes and the Gileads, are a safe place to hide in the event of a correction.

Unfortunately, a lot of these ETFs are going to get heavily skewed around by some of these companies that just don’t have the cash flow support to their evaluation

MATHISEN: So if I’m tempted by the idea that this sector that, over the long term, and I assume you agree, tell he if you don’t, is going to be one the growth area in medical technology. Should I invest, number one? And if so, show should I leave the stock picking to a pro like you?

PORGES: Well, look, there’s no doubt we’ve seen revolutions in technology in the biotech field over the last year and a half or so. Cancer immunotherapy, nuclear and (ph) therapeutics, gene therapy, these are some of the very exciting opportunities that are emerged, and in many ways have been validated. So, the optimism you described is certainly justified.

What we don’t — what people don’t fully understand is the riskiness of these technologies and developments. Many of them are just science experiments. So if you’re committed to investing in that innovation, I’d wait for the dust to settle here and get back into the ETF or have a basket of these emerging technology companies and certainly companies like Celgene (NASDAQ:CELG) have access to that innovation through their partnerships. We think that’s a good way to participate, rather than pick stocks yourself.

GHARIB: Real quickly, less than half a minute, would you put new money into a company like Celgene (NASDAQ:CELG) or Amgen (NASDAQ:AMGN), some of these that you were just mentioning?

PORGES: Certainly. Those large caps I think that are attractively valued here and we’re definitely recommending Celgene (NASDAQ:CELG) and Gilead, just be more cautious about the smaller cap names.

GHARIB: All right. Geoff, thank you so much. Geoff Porges, a senior biotech at Sanford C. Bernstein, thank you very much.

PORGES: Thank you.

MATHISEN: There is just one week left until the Affordable Care Act’s open enrollment period ends, but for some states, another deadline looms, leaving just six months to fix problems still plaguing their web-based exchanges in time for 2015’s open enrollment.

As Bertha Coombs reports, it may be harder to affect some of those fixes than to start from scratch.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: After a notoriously bad start, Secretary Kathleen Sebelius is looking for a strong finish to ACA open enrollment. The federal Healthcare.gov marketplace now works well for the 36 states it serves. But in about half of the states that built their own exchanges, problems persist.

RICK HOWARD, GARTNER RESEARCH DIRECTOR: There certainly have some states that get an F grade, some that are in the D category.

COOMBS: Among those not making the grade, Hawaii, Massachusetts and Vermont, which all use CGI to build the exchanges, the same contractor blamed for problems with Healthcare.gov. The Bay State fired CGI last week. Maryland also fired its contractor, North Dakota-based Noridian.

But even big name tech firms stumble. In Nevada, Xerox (NYSE:XRX) is under fire for its faulty software, but CEO Ursula Burns is grateful that the state will keep her firm on.

URSULA BURNS, XEROX CHAIRMAN & CEO: Having a disciplined engineering development and rollout is what is needed in these exchanges. Just like anything else, it’s kind of like getting a person to the moon, you don’t do it fast, you do it right.

COOMBS: Nothing seemed to go right in Oregon. Federal and state investigators are trying to figure out why the state’s exchange built by database giant Oracle (NASDAQ:ORCL) was never able to enroll online, after more than $240 million in federal grants. Analysts say like CGI, Oracle (NASDAQ:ORCL) never built the system end to end and didn’t have time to test.

GARTNER: Oracle (NASDAQ:ORCL) policy automation rules engine is used in numerous successful exchanges, but to have the entire framework applied or entire IBM current framework applied to this particular solution, had not really been proven out.

COOMBS: The exchanges that worked best — California’s whose lead contractor was Accenture. Washington state, Kentucky, Rhode Island and Connecticut, which were all build by Deloitte Consulting.

Connecticut’s Kevin Counihan says the key to success was that his team worked closely with Deloitte to figure out what was achievable under a tight deadline.

KEVIN COUNIHAN, ACCESS HEALTH CT CEO: We were building a Cadillac and decided that we needed a Ford Focus and we scaled back about 30 percent of what we wanted. And coming out of that was a much more focus type of workflow.

COOMBS (on camera): With 2015 open enrollment starting in less than eight months, troubled exchanges face another tight deadline. States like Oregon are going to have to decide soon whether they’re going to try to fix what they have or scrap it all together after investing hundreds of millions in federal grants to start fresh with proven technology.

Bertha Coombs, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

GHARIB: The latest now on that missing Malaysia plane with 239 people on board. After 17 days, relatives received word late today from Malaysia’s prime minister that after numerous satellite images spotting debris, there was, quote, no doubt that Flight 370 went down in the Indian Ocean and that no survivors will be found.

(BEGIN VIDEO CLIP)

NAJIB RAZAK, MALAYSIAN PRIME MINISTER: With deep sadness and regret that I must inform you that according to this new data, Flight 370 ended in the southern Indian Ocean.

(END VIDEO CLIP)

GHARIB: Eunice Yoon has more from Beijing where relatives of those aboard the jet got the news today.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The families in China were overwhelmed with despair. The relatives have been staying in the hotel behind me for the past two weeks, and it’s been a very difficult, intense time for them where every bit of information or every rumor that’s come up has really weighed on their mental state.

Now, the airline had called the families in for an emergency briefing tonight. They said there they were listening to the statement by the Malaysia prime minister on TV, and it was a statement that none of them wanted to hear.

Now, this was a very controlled area normally, but chaos quickly ensued. There was a man who ran out of the room. He quickly fell down an escalator and fell on his back and had to be dragged away. There was a woman that fell to her knees and sobbed, and she said that her children were on the plane. She said her grandchildren were on the plane, and that she was now alone.

There were many medical emergency workers who were going into the room and they were trying to help the people who were there because several of them had fainted from the shock, and there were also angry relatives who started to break out in fights and were demanding more information including any hope and any sign that their families might be alive.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.

(END VIDEOTAPE)

MATHISEN: Well, the recent slow down in growth in China’s economy, coupled with Beijing’s loosening its grip on the yuan and opening up the capital market has had a big impact on sales at Caterpillar (NYSE:CAT). But according to CEO Doug Oberhelman, there is no need to panic.

(BEGIN VIDEO CLIP)

DOUGLAS OBERHELMAN, CATERPILLAR CHAIRMAN & CEO: In terms of our business on the ground here, our production rates, what we’re seeing with our customers in China, it’s really more flattish than down. I don’t see a doom and gloom atmosphere at all coming up, but certainly I don’t see a boom, either.

I think really what we’re witnessing is the continuing transition from a really good solid double digit growth rate, 12 percent to 15 percent a few years ago, down to maybe seven or eight, and frankly, we’re caught up in that slow down.

(END VIDEO CLIP)

MATHISEN: Caterpillar (NYSE:CAT), the world’s largest maker of construction and mining equipment, is often seen as a proxy for global economic activity.

GHARIB: But there was good news on the outlook for the U.S. economy. After a setback from bitter winter weather and the first quarter of the year, the consensus now from the latest survey of the National Association of Business Economics is for the economy to pick up, despite the Federal Reserve’s ending its bond buying stimulus. The group is also forecasting the U.S. economy to grow 3 percent or more by the end of 2014.

MATHISEN: More potential problems for General Motors (NYSE:GM). Senator Richard Blumenthal of Connecticut is asking the attorney general to force G.M. to set up a fund to compensate victims, family members, car owners, affected by defective ignition switches in more than a million of its cars over the past 13 years, defects that have been linked to 31 accidents and a dozen deaths.

Under the terms of its emergence from federal bankruptcy protection in 2009, the new General Motors (NYSE:GM) is not liable from claims from accidents that happened before July of that year.

In the meantime, “The New York Times (NYSE:NYT)” reports that federal regulators are looking into whether the auto maker committed bankruptcy fraud in 2009 for not disclosing what it knew about those faulty ignitions and when the company knew it.

GHARIB: Coming up, tech drama in Silicon Valley. Did some of the biggest names conspire to fix the high-tech job market?

(MUSIC)

MATHISEN: Guilty on all counts. It was a clean sweep for prosecutors in the trial of five former employees of the Wall Street swindler Bernie Madoff, all five convicted of charges ranging from securities fraud, criminal conspiracy for helping Madoff hide his massive Ponzi scheme for years. Previously, nine others former Madoff employees pleaded guilty to aiding his fraud.

GHARIB: A hopeful time frame for Detroit to emerge from bankruptcy. Kevyn Orr, the city’s emergency manager, said today that he hopes the city’s plan for financial restructuring will be approved and put in place by this fall. Thousands of city retirees and beneficiaries will receive ballots to vote on the restructuring plan by the end of April.

MATHISEN: Congress returns to Washington today from one of its two spring recesses and lawmakers have a lot on their plates from sanctioning against Russia to extending unemployment benefits to a possible vote to raise the federal minimum wage.

John Harwood joins us now from the nation’s capitol with more.

John, what’s number one on congressional agenda this week?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Number one, Tyler, is going on right now on the Senate floor, which is a vote to begin debate on a bill that would include aid loan guarantees for Ukraine, also sanctions against Russia that would allow President Obama to go further than he’s already gone, also include some reforms to the IMF, which the House has objected to in its own bill aiding Ukraine.

But this is, while the president is overseas, this is a step forward that the administration hopes to take and Democrats hope to take. They do expect to get the 60 votes needed to move that bill ahead, perhaps pass it by the end of the week.

GHARIB: So, you think both sides will come together, Republicans and Democrats, behind this Ukraine sanctions, but what about some of the issues that Tyler just mentioned, whether its minimum wage, immigration, whatever?

HARWOOD: Well, I think that Republicans will come together eventually if not this week. Other things obviously are much more difficult.

Unemployment insurance benefits, there is a bipartisan agreement in the Senate. The House has said they will not pass it. We’ll see whether they can sustain that position.

They are resisting going on with minimum wage. I think that is ultimately this summer, perhaps an area where Republicans might try to defuse an attack line from Democrats. But right now, it’s stalled.

You’ve also got a bill to restore doctor fees, the so-called doc fix. Many doctors under Medicare are going to see their rates cut, unless Congress acts. That is one where is likely that Republicans and Democrats are going to act, because that’s a key constituency.

MATHISEN: Is there a point at which in this election year work either needs to be done or it just won’t get done?

HARWOOD: It’s hard to say, Tyler. You know, typically, people have said, well, if you don’t get it done by the end of the summer, that big things can’t happen. But, you know, you look back to the 1986, the sixth year of Ronald Reagan’s presidency, they passed tax reform and immigration reform in September and October before the election. So, I wouldn’t bet a lot of money on late actions, but it’s not impossible if Congress decides they need to move.

MATHISEN: Well, I forget, and that’s an interesting note, John. I had forgotten that was 1986 in the fall.

John Harwood, thanks very much.

GHARIB: Herbalife (NYSE:HLF) gives Carl Icahn three more seats on its board and that’s where we begin tonight’s “Market Focus.”

The nutritional products maker will have five Icahn-backed board members if the new additions are approved. Icahn is Herbalife’s biggest shareholder and he’s backed the company, despite claims that it’s a pyramid scheme. Shares surged about 7 percent to $52.86.

Coca-Cola’s executive team came under attack today for excessive pay. Shareholder David Winters who runs the money management firm Wintergreen Advisers sent a letter to Coca-Cola (NYSE:KO) shareholders, including Warren Buffett, criticizing the company’s compensation plan. The activist says the plan transfers too much wealth from shareholders to management. Coke responded saying Wintergreen has misunderstood how the plan works. Shares were off a fraction to $38.40.

Reports that Apple (NASDAQ:AAPL) is no in talks with Comcast (NASDAQ:CMCSA) (NYSE:CCS) for a streaming TV service sent shares of both companies up in today’s session. The rumor deal would use Apple’s set top boxes and Comcast (NASDAQ:CMCSA) (NYSE:CCS) cables so that content could bypass congestion on the web. Shares of Apple (NASDAQ:AAPL) rose 1 percent to $539 and change. Comcast (NASDAQ:CMCSA) (NYSE:CCS) edged up a fraction to $50.30.

We want to remind you, Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of CNBC, which produces this program.

MATHISEN: And a report that apple is considering launching a new on demand music service weighed on shares of Pandora. Apple (NASDAQ:AAPL) is also reportedly considering developing an iTune’s app for Google’s android devices. Shares of Pandora down about 8 percent to $31.39.

Disney (NYSE:DIS) names its ABC News president Ben Sherwood as co-chairman of its media networks and president of Disney (NYSE:DIS)/ABC Television Group. Sherwood will replace Ann Sweeney who announced her resignation two weeks ago. And after the bell, “Reuters” reported that Disney (NYSE:DIS) will buy the YouTube channel Maker Studios for half a billion dollars. Shares of Disney (NYSE:DIS) fell today, down 1 percent to $79.49.

Cisco (NASDAQ:CSCO) will spend a billion dollars over the next two years to build up its Cloud computing network, rather than build its own Cloud service and compete with companies like Amazon (NASDAQ:AMZN) and IBM. Cisco (NASDAQ:CSCO) will deliver the service, which it will call inter-Cloud through a network of partners. Shares fell slightly today to $21.57.

GHARIB: Speaking of technology, it’s tough enough getting a good job these days, but in Silicon Valley, a lot of high-tech workers are finding out just how tough it really could be.

As Josh Lipton reports, there are allegations of secret agreements to not poach employees of large tech companies.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It all started with Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) entering into an alleged secret agreement promising not to poach each other’s employees. Now, court documents show that this alleged tech wage conspiracy scheme could include Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL), IBM and Comcast (NASDAQ:CMCSA) (NYSE:CCS), among others. The class action lawsuit is being brought by attorneys representing 64,000 tech workers. A lawyer close to the case says they are seeking $9 billion in damages. They say there was a behind the scenes agreement to limit worker mobility and compensation.

In 2007 when a recruiter from Google (NASDAQ:GOOG) contacted an Apple (NASDAQ:AAPL) employee, Steve Jobs forwarded the message to Eric Schmidt, Google’s former CEO, saying, “I would be very pleased if your recruiting department would stop doing this.” Google (NASDAQ:GOOG) responded by firing the recruiter within the hour.

In another email, Intuit’s former chairman and Apple (NASDAQ:AAPL) board member Bill Campbell wrote Google’s Sergey Brin about Steve Jobs. “Steve called me again and is (EXPLETIVE DELETED) that we’re still recruiting his browser guy.” Brin responded saying Jobs had told him, “If you hire a single one of these people, that means war.”

Now, one prominent Silicon Valley executive is distancing herself from the controversy. Cheryl Sandberg, Facebook’s chief operating officer, filed a declaration with the court on Friday of last week that pins this scheme specifically on two Google (NASDAQ:GOOG) executives. Sandberg says she was contacted by the Google (NASDAQ:GOOG) executives who, quote, “expressed concern about what was described as the perceived rate at which Facebook (NASDAQ:FB) could hire employees from Google (NASDAQ:GOOG).” Sandberg refused to cooperate with Google’s officer for a non-poaching agreement in a clear rebuke to its rival.

So, what happens next? This coming Thursday, the legal fight between plaintiffs representing tech workers affected by the potential scheme and attorneys representing the companies involved head to court. Jury selection starts on May 27th.

As for the tech companies, they say they had done nothing wrong. Apple (NASDAQ:AAPL) points out that between 2005 and 2009, hiring of tech workers at their company jumped 50 percent and wages rose as well. No signs of a conspiracy there, Apple (NASDAQ:AAPL) says.

One legal expert says the parties may settle out of court, another expects a fight until the end.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.

(END VIDEOTAPE)

MATHISEN: Up next, why some of the world’s top luxury auto brands are finding America is fertile grounds for expansion.

(MUSIC)

MATHISEN: Prices at the pump are still on the rise, up 5 cents a gallon on average over the past two weeks, this according to the Lundberg Survey. Among the reasons, the rising cost of the additive ethanol and refiners are switching over to making more expensive summer blends of gasoline.

MATHISEN: For years, German automakers like BMW and Mercedes Benz have assembled many of their luxury cars right here in the U.S. But now, demand is surging and not just in the States.

As Phil LeBeau tells us, U.S. manufacturing plants have now become the world supplier for many of those luxury wheels.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It is the newest model built by BMW and as the first X4s roll off the line in Spartanburg, South Carolina, the head of BMW North America is banking on the luxury crossover adding to the demand of BMW’s X lineup.

LUDWIG WILLISCH, BMW NORTH AMERICA CEO: Our dealers and our customers are screaming for more X5s, X3s and I’m sure they will be fond of the X4.

LEBEAU: The start of X4 production means BMW is once again expanding in South Carolina, steadily adding jobs to a plant where more than 7,000 already work. Since 2008, increasing demand for luxury SUVs has led BMW to more than double production at the Spartanburg plant and within the next few years, that number could grow even more.

MICHAEL ROBINET, IHS (NYSE:IHS) AUTOMOTIVE: There is no doubt that at some point, BMW in South Carolina could be the largest location for BMW production anywhere in the world.

LEBEAU: And it is the world beyond America that will drive 70 percent of the BMWs build in Spartanburg. The biggest market for exports are China, Germany, and the countries of Central Europe, followed by Great Britain and Western Europe. Given the growing appetite for luxury crossover and sport utility vehicles, could BMW some day built a half million vehicles every day in Spartanburg?

WILLISCH: I wouldn’t say it’s not impossible. At least we have the space already to expand the plant to further growth.

LEBEAU: While BMW now trails Mercedes in luxury sales in the U.S., it did sell more than 300,000 vehicles last year and the new X4 is expected to boost that total.

(on camera): The X4 rolls into showrooms in the middle of this year and while BMW has yet to announce a starting price, most believe it will start around 45 grand.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Spartanburg, South Carolina.

(END VIDEOTAPE)

MATHISEN: And that will do it for NIGHTLY BUSINESS REPORT for tonight. I’m Tyler Mathisen. Thanks for watching.

GHARIB: And I’m Susie Gharib. Have a great evening, everyone. Tyler and I will see you right back here tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. 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) 2014 CNBC, Inc.

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