Friday, August 26, 2011

What Is Behind the Critical Shortage of Prescription Drugs?

Today, the critical shortage of prescription drugs reached the editorial page of the New York Times. Under the heading The Shortage of Vital Drugs, the paper said:
A widespread shortage of prescription drugs is hampering the treatment of patients who have cancer, severe infections and other serious illnesses.

The Food and Drug Administration says that some 180 medically important drugs have been in short supply, many of which are older, cheaper generic drugs administered by injection that have to be kept sterile from contamination.

A survey of 820 hospitals in June … found that almost all of them had experienced a shortage of at least one drug in the previous six months … As a result, more than 80 percent of the hospitals delayed needed treatments, almost 70 percent gave patients a less effective drug, and almost 80 percent rationed or restricted access to drugs.
The cause of this shortage? According to the editorial:
Nobody is sure just what is causing the shortages ... But several factors are likely to be involved: contamination problems at some manufacturing plants, forcing unexpected production shutdowns; difficulties in getting pharmaceutical ingredients from suppliers, especially those abroad; reluctance to invest in production-line improvement for low-profit generics when high-priced brand-name drugs bring in far higher profits. Sweeping consolidation in the generic drug industry means that fewer companies are left in that market to make up for a shortage.
The Times has become a trashy paper, more in the league of The New York Post than its previous self. Its stories are old, the opinions in its pages downright embarrassing. That is why I rarely quote it now.

Here, it blames “contamination” and the difficulties with the supply lines. The drug companies in question are some of the largest, most advanced industrial corporations in the world. They are the “Big Pharma”, some with over a century of experience in drug manufacturing; we are not talking about the chicken processing plants in Alabama and Georgia. The idea that they will allow contamination or suppliers to impact their output is laughable.

More than 3 months ago, the Financial Times had covered the same story in a greater depth. On May 4, in a news story titled Drug takeovers spark shortages it said:
Pricing pressures and takeovers in the US pharmaceuticals sectors have contributed to record medicine shortage and could put lives at risk, sparking calls for wide-ranging reform.

The American Society of Health-System Pharmacists said last year its members could not obtain an unprecedented 211 prescription drugs through the usual channels ...

Cynthia Reilly, director of the ASHP’s practice development division, said: “There has been a lot of consolidation among manufacturers, with fewer producing any given product, and more quality inspection by regulators. “For older, off-patent drugs, some companies are disengaging because it’s not where the profit is.”
Cynthia Reilly is barely touching upon the subject. The background of the drug shortage, in a nutshell, is that the century-old business model of pharmaceutical companies – doing research and bringing new drugs to market under the protection of the patent law – is no longer working. The problem is structural.

In the 1980s, the Big Three auto companies also faced a structural problem: they could no longer afford the social function of supporting their retirees. At one point, GM claimed $1,100 in the price of each car was earmarked for retirees' pension and insurance. With a nod from the company, the stories spread about GM being a retirement fund that also happened to make cars. In the face of stiff competition from then Japanese car makers, that could not be done. The rest is history, with bankruptcies, pension losses and layoffs.

The problem of the big pharma is likewise structural albeit of a different nature. “Structural” is the key word, though. It means that there is no cure. The business model is dying and, naturally, the vultures have descended on the scene.

Here is one, as per The New York Times of January 26, 2005, under the heading Making a Fortune by Wagering That Drug Prices Tend to Rise. As you can see, the problem has been in the making for some time.

Over the last 20 years, the packing and shipping of drugs evolved into a game of arbitrage, called speculative buying, with distributors like Mr. Rahr (who paid $45 million cash for an East Hampton estate) wagering on drug price increases.

This common industry practice seems more fitting to a casino than a distribution warehouse. And in the 1990’s and the early years of this decade, with prices far outstripping inflation, it was a sure bet…..

Mr. Rahr would not disclose exactly how much he made through speculative buying. Goldman Sachs estimated that the distribution industry, which is dominated by three large public companies, made 60 percent of its profit, or $980 million, from speculative buying in 2001, when the practice was at its peak. More recently, Goldman Sachs estimated speculative buying’s contribution at 40 percent of profits.
In some ways, the practice helped drug manufacturers, who relied on speculative buying in lieu of paying distributors to get drugs to pharmacies. In effect, it was a form of hidden compensation that never showed up as a cost to manufacturers. But speculative buying fostered many problems, industry analysts and economists said. Some said it played a role in drug cost inflation by adding an incentive for manufacturers to raise prices repeatedly. It also gave sometimes gave drug makers false signals that products were in demand, prompting them to turn out excess product.

By encouraging distributor stockpiling, the system also led to shortages in some regions of the country, a situation known as a “stock out” and one that the industry does not like to discuss. Last year, Bristol Myers Squibb paid $150 million to settle allegations … that it misled investors by aggressively encouraging wholesalers to flood their warehouses, thus artificially inflating its sales.
That’s all. Unless you want to know about Mr. Rahr, the sophisticated Brooklynite with his “trademark yellow ray ban glasses”. Then google him. Interesting character, he.

Sunday, August 14, 2011

The Origin of the [crisis in the] European Union – 3: To Serve Europeans or 2 or 3 Things I know About Force

In one of the episodes of the old US TV series, The Twilight Zone, an alien ship lands on earth and a heated discussion ensues among the earthlings as to the aliens’ intentions: are they friends or foes?

Some say the aliens are friendly. Others are skeptical. How is one to judge?

The aliens have a book that they frequently consult. It is agreed that if the book is deciphered, it could provide a clue to their intentions. So cryptographers go to work and finally get the books’ title: To Serve Man.

Everyone is jubilant. The aliens have come to earth to serve the people. Friendly aliens, these.

People drop their guards. They begin mingling with the aliens and even accept their invitation to visit the alien ship and travel with them.

In the final scene, as the ship is taking off with its human cargo, the code breaker who had been working on the translation finishes her job and frantically runs to inform the human passengers. To Serve Man was a cookbook.


At that point, if the humans wanted to get off the space ship, they would have been stopped by force.

Force comes in when the “free choice” of the subjects will not do the trick.

Democracies count on that free choice to function.


The EU is the spaceship. Its member states are the humans. Finance capital, and its most recent offshoot, speculative capital, are the aliens. I am one of the code breakers. And force is, well, force.


To talk about force, you have to know your stuff.

Take Newton’s F = ma.

Now, stay with me.

The equation says that force equals mass times acceleration.

This is the most profound relation in physics; the much touted E=MC2 is derived from it. (And don’t be fooled by its simplicty. It is a vector differential equation, if you know your math and physics).

What is force in this equation, I ask you.
  • Well, Nasser, it is force.
  • But what is force? Acceleration has a precise definition: it is the change in speed per unit of time. If your car’s speed increases from 30 to 40 miles in 4 seconds, its acceleration is 2.5 miles/hr per second. Do we have a definition like that for force?
  • Nasser! Force is force – like gravity. Like the weak and strong nuclear force. Like electromagnetism. Just like pornography, we know force when we see it.
  • Pornography has a precise definition. It is the depiction of sex for the purpose of commerce. It was this commerce angle that the pedestrian intellect of that Supreme Court judge could not see. But, force?
At this point, you might try defining it from the equation: from F=ma, force is that thing which, applied to mass m, gives it a given acceleration.

But, then, what is mass?

Alas, that too is a tricky thing to define. All we can say at this level is that mass is the property of matter.

In twin ambiguities of force and mass lies the profundity of F=ma. The equation defines physics. What is force and what is matter: these are the twin subjects of the discipline.

The four type of forces in the universe I mentioned above must somehow be related. To date, no one knows how. The Grand Unification Theory is the suitably descriptive name for the line of research to answer that question.


As in nature, so in social life: there are different types of social forces. But unlike in nature, we know their commonality thanks to Karl Marx. “Force”, he wrote, “is an economic factor”.

The statement lends itself to being read in a way that does not sufficiently highlight the role of force. Any “non-personal” force is an economic factor. The famous line in The Godfather movies – “it is business; it is not personal” – repeated several times throughout, succinctly captured that truth.

Except for acts of passion and mad men, force is always used in furtherance of economic interests. The “business” is always the end. Force – manifested in violence and thuggery – is always the means. It is an aspect of doing business, like meeting and negotiation. That few people got that central theme of The Godfather is a testimony to the visual and aesthetic underdevelopment of the general population; the message was there throughout, loud and clear.

The meeting of the heads of the 5 families in which they agree to get into narcotics is a board meeting – and the most authentic representation of a board meeting in the movies that I know of; it stretches into the night as the members argue over an important strategic move.

Or take the famous scene in the Bronx restaurant where Michael Corleone, played by Al Pacino, shoots the corrupt cop and a rival gangster, Sollozzo.

It is a business meal that would be tax deductible – had Sollozzo stayed alive to report it as an expense.

Paul Carlucci no doubt did. He is a thug by virtue of being a Murdoch minion and the “publisher” of the New York Post. He is also a consigliere who sets the News Corp's corporate philosophy. From the New York Times:
News America was led by Paul V. Carlucci, who, according to Forbes, used to show the sales staff the scene in “The Untouchables” in which Al Capone beats a man to death with a baseball bat. Mr. Emmel testified that Mr. Carlucci was clear about the guiding corporate philosophy.
Observe this encounter he had with a businessman whom Murdoch wanted to force out of business, as reported in the New York Times:

George Rebh, who founded Floorgraphics along with his brother Richard, met with Paul V. Carlucci, head of News America, in 1999 at a Manhattan restaurant, and the News Corporation executive got right to the point.

“I will destroy you,” Mr. Carlucci said, according to his deposition in the Floorgraphics suit against News America, adding, “I work for a man who wants it all, and doesn’t understand anybody telling him he can’t have it all.” (Mr. Carlucci is now the publisher of the News Corporation-owned New York Post.)

Just in case the Rebh brothers did not get the point, court records indicate that beginning in October 2003, someone working out of the Connecticut headquarters of News America Marketing gained access to the Floorgraphics computer network, which included a collection of advertisements the company had created for its customers.
Don Corleone did not want it all. Rupert Murdoch wants it all, as befitting a man bent on creating a global media empire.

But if you want it all, something has to give: all the people around you have to get to work, including your wife; we all know that wife has to work if the family wants a better car or a bigger house.

If the work involves paying cops, eavesdropping on unsuspecting victims and hacking dead schoolgirls’ cell phones, the working wife must fit in. The disengaged wives of yesteryears who, by their admonishing silence and disapproving looks mitigated the violence in however a small way, are gone.

In their stead, we have Wendi Murdoch.

According to the New York Times, “although she occupies no formal position in Mr. Murdoch’s companies, she acts as counselor to her husband and by all accounts has asserted influence in his global media empire.”

So, she, too, is the consigliere, just like Tom in The Godfather. Only in those bygone days, Tom could stay a consigliere and out of direct thuggery; everyone knew he was not a “soldier”.

That comfortable division of duties is no longer possible. In the modern business word, everyone has to join the battle on all fronts. Consiglieri cannot sit on their asses and intellectualize. Carlucci who sets the corporate policy also quotes Al Capone and threatens people. Consigliere Wendi must likewise multitask.

You no doubt know that during the parliamentary hearing to Murdoch’s criminality, a protester hit him in the face with a plate of foam and Murdoch’s wife rose to her husband’s defense.

Watch these pictures taken from the live recording of the event.

The protester in the checkered shirt is on the left side. Wendi Murdoch stands out in the pink jacket. She is sitting behind her husband, Rupert, the bald man sitting at “7 o’clock”.

There are many things we can learn from these shots. But I don’t want to digress too much. Merely compare the first and the last frame and observe the speed and the angle of the wife’s reaction.

She is surprisingly quick. The woman in the grey suit has reacted first but only because she is closer to the protester and has seen him first.

Then Wendi moves in and immediately overwhelms everyone around her.

The important point is that she completely ignores her husband.

A woman’s first instinct – her maternal instinct – would be to shield her husband from an attack. Or rush to see if he was hurt.Wendi Murdoch displays no such weakness. She jumps straight at the attacker, but even in that move, the point is not to “neutralize the threat”, as a trained bodyguard would do, but to beat the man. The incident is an excuse for unleashing violence. He made her day.

The pictures do not show, but after the man was subdued, Wendi Murdoch kept pummeling away the man in the face and head and then she went further. According to the same article:
Some reports in the British press suggested that after the thwarted attack she even picked up the paper plate from the witness table and shoved it into the protester’s face, screaming as she did so. The protester ... was later led away by the police with his face covered in white cream.
“Mr. Murdoch, your wife has a very good left hook,” said Tom Watson, a Labour member of Parliament.

You have to imagine the mentality and disposition of a woman who lands repeated blows to a subdued man’s face and then takes a plate of foam and shoves it in his face.

And she does that in front of Members of the Parliament of the United Kingdom with TV cameras rolling and hundreds of reporters present, in a meeting convened to investigate the criminal conduct of an organization of which she is a consigliere.

Imagine what this woman could do in private with a vulnerable rival or underling. We are dealing with a Sonny Corleone here, however unlikely the physical resemblances might be. But Jean-Luc Besson showed us that slender women in evening dresses are perfectly capable of doing what men do.

That is the stuff a modern-day media empire is made of.

All this was the good news, in the sense that these thugs are small time players. Their use of force is limited in scope – threatening Peter here, whacking Paul there – and plain for everyone to see. They merely aim to “engineer” the individuals, if you will.

Even when thuggery becomes grand scale in the form of war, most people can see it for the racket it is. War is costly and at some point, it has to end.

It is different with finance capital. Like a well-trained boxer who punches not merely with his arm but with the full weight of his body, finance capital hits with the full weight of “the system”. Nay, it hits with the system. So it never has to stop.

What enables it to do so is democracy.

Sunday, August 7, 2011

A Brief Commentary on the U.S. Rating Downgrade

S&P downgrading the U.S. “credit” was a publicity stunt by the company for the company. The stunt had its share of bit players and company politics, but it took place within, and was ultimately driven by, a larger narrative that is slow growth in the U.S. and the finance-capital driven mandate of slashing public spending. Let us take them one by one.

One bit player was John Chambers of S&P, with the transparently fraudulent title of head of the company’s “sovereign rating committee”. He no doubt sees no absurdity in rating countries; his job title discourages coherent thinking, which is why he says drivel like this in a news conference:
“The debacle over the debt ceiling continued until almost the midnight hour,” said John B. Chambers, chairman of S.& P.’s sovereign ratings committee [by way of defending the downgrade].
Never mind that a debacle, by definition, cannot continue. But suppose it could and did. What of it? Was it at that last hour that the Chairman of S&P’s Sovereign Rating Committee realized there was a gridlock in Washington?

In truth, the “debacle” was an excuse as minds were already made up. Observe:
Officials at the White House and Treasury criticized S.& P.’s move as based on faulty budget accounting that did not factor in the just-enacted deal for increasing the debt limit.

In its analysis, S.& P. had projected the nation’s debt as a share of gross domestic product to reach 93 percent by 2021. That was around 8 percentage points higher than the figure administration officials believed the rating agency should have used — what they now call a $2.1 trillion error.

Gene Sperling, the director of the White House national economic council, called the difference, totaling over $2 trillion, “breathtaking” and said that “the amateurism it displayed” suggested “an institution starting with a conclusion and shaping any arguments to fit it.”

Around 5:30 p.m. [the day the downgrade was announced), S.& P. officials called the group of Treasury officials. “You were right,” Mr. Chambers told them, but said he was prepared to proceed because the revisions didn’t meaningfully affect S.& P.’s conclusion.
So the boys at S&P miss more than $2 trillion. The error is pointed out to them, but they still go ahead with the downgrade.

Why? Why such resoluteness to do something so controversial, especially when the other two big raters, Moody’s and the historically more strict Fitch, did not agree?

Enter another bit player, one Barry Rosenstein, a hedgie by day and human rights fighter by night.

He and other “activist investors” have accumulated large blocks of shares in McGraw Hill, the parent company of S&P. The plan is to break up the company, sell the valuable parts for profit and discard the rest.

When that time comes, the image of S&P as an independent and objective rating agency that took on the U.S. government could boost its value – or so the thinking must have been inside the company. Hence, the downgrade stunt.

Beyond the narrow company politics is the larger narrative of the downgrade as an instrument of coercion to force the government to cut their spending. In the upcoming Part III of the EU crisis, I examine this coercion mechanism in some length. It has implications that go far beyond the bit and two-bit players in the corporate, hedge fund and the takeover world.