231 (23 September 2015)

Welcome to week 231!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(16 September 2015): “The ‘Golden Age’ for Biotech Stocks Could Be Nearing an End” (http://blogs.wsj.com/moneybeat/2015/09/16/the-golden-age-of-biotech-stocks-could-be-nearing-an-end/)

——–Research analyst Geoff Porges of Bernstein has written that biotech companies “have enjoyed something of a golden age in terms of returns, growth and R&D productivity.”  But mature firms “can find it difficult, if not impossible, to repeat or add to the glories of their youth.”  In relation to biotech, Porges notes that “larger companies in the industry are shifting their budgets and spending more on what he deems financing engineering, including stock buy backs and other balance sheet activities, rather than activities that advance the company’s business plans.”

********The blog also contains some comments about “industry life cycles” that are of interest.  What is of general interest to me is that by focusing on budgets and spending with respect to product engineering and financing engineering can provide insight into where a firm or industry is in relation to its life cycle.  In trying, unsuccessfully, to find the Porges study, I ran across a free daily biotech newsletter that you can find at: http://www.fiercebiotech.com/.

(17 September 2015): “China’s Changing Tastes Offer Upside for Coffee” [SR](http://www.wsj.com/articles/chinas-changing-tastes-offer-upside-for-coffee-1442431980)

——–“Demand for commodities in China might be on the wane as its economy slows, but in a nation of tea drinkers, coffee—even a pricey cup—is a rare bright spot.  Demand is also burgeoning for other small luxuries like imported fresh fruit, driven by changing tastes and an expanding middle class.”  Currently, “China’s population consumes just 4.5 billion cups of coffee a year, well below North Americans, who drink 133.9 billion cups a year.”  According to food and drink analyst Raphaele Auberty of BMI Research in London, coffee represents “the Western lifestyle that is attractive to all those upper- and middle-class urban consumers.”  Coffee retailers are looking to take advantage of these developments.  At present “Starbucks has 823 stores in mainland China and hopes to have 3,000 in the country by 2019.”

********It is remarkable to look at the difference in coffee consumption in China versus North America and the argument does suggest that there is a lot of room for growth should the claim be true that the Western lifestyle is something Chinese consumers will want to emulate as income levels grow.  In economic parlance, coffee is (at least) a normal good, i.e., one the demand for which increases as income increases, all other things being equal.  It does seem, though, that the article is suggesting that coffee is more like a superior good or a luxury good.  If you are interested in some of these definitional issues, you can explore them at: https://en.wikipedia.org/wiki/Superior_good.

(21 September 2015): “Inside the Golden Door” [SR](http://www.wsj.com/articles/inside-the-golden-door-1442787645)

——–[A review of A Nation of Nations, by Tom Gjelten.  Gjelten is a correspondent for National Public Radio.]  “In 1965 the percentage of immigrants in the United States was only 4.4%.  Today, thanks in large part to the Immigration Act of 1965—which abolished the discriminatory quotas that barred most immigrants from outside of northwestern Europe, increased family-based immigration and allowed for more legal immigration—it stands at 13%.”   Nation “tells the story of five immigrant families adjusting to Virginia life, and how schools, the local government, Catholic Charities and the nonprofit Northern Virginia Family Services helped them integrate. . . . . Mr. Gjelten picked families who didn’t fit seamlessly into American life.  They struggle with English and government regulations, and some raise national-security concerns.  But within a generation each family does well enough that their children integrate and find careers.”  Much of Gjelten’s book “is dedicated to relaying the history of U.S. immigration policy, with a special emphasis on the nativists who opposed liberalization.”

********The review points out that from “1790 to 1875 there were virtually no federal immigration laws, only restrictions on naturalization” and that the “harsh immigration restrictions of the early 20th century were a tremendous departure from our founding ideology.”  The central element in those restrictions was “the Immigration Act of 1924 (also known as the ‘national origins system’).”  You can also read a review of Nation at: http://www.nytimes.com/2015/09/13/books/review/a-nation-of-nations-by-tom-gjelten.html.  You can learn more about the book at: http://www.amazon.com/gp/product/1476743851.

********The reference to “Golden Door” in the title of the review meant nothing to me until I tried to learn more about the history of immigration policy in the United States at Amazon.  While doing so, I happened upon the book Guarding the Golden Door: American Immigration Policy and Immigrants Since 1882, by Roger Daniels (http://www.amazon.com/Guarding-Golden-Door-Immigration-Immigrants/dp/0809053446/).  There, in a Customer Review was the answer—it comes from the so-called Statue of Liberty poem “The New Colossus” written by Emma Lazarus.  You can read the sonnet at: https://en.wikipedia.org/wiki/The_New_Colossus.  The concluding lines are:

Give me your tired, your poor,

Your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tost to me,

I lift my lamp beside the golden door!

Heady words, indeed, in these times when immigration is on the minds of so many.

(21 September 2015): “Drug Goes from $13.50 a Tablet to $750, Overnight” (http://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html)

——–“Specialist in infectious disease are protesting a gigantic overnight increase in the price of a 62-year-old drug that is the standard of care for treating a life-threatening parasitic infection.  The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager.  Turing immediately raised the price to $750 a tablet.”  The increase “is not an isolated example.  While most of the attention on pharmaceutical prices has been on new drugs . . . , there is also growing concern about huge price increases on older drugs, some of them generic, that have long been mainstays of treatment.  Although some price increases have been caused by shortages, others have resulted from a business strategy of buying old neglected drugs and turning them into high-priced ‘specialty drugs.’”  Up until several years ago, when Daraprim was acquired by CorePharma, the drug “cost only about $1 a tablet.”

********The change in the price of Daraprim means that annual treatment cost for some patients will run to “hundreds of thousands of dollars.”  The founder and CEO of Turing is Martin Shkreli, who employed a similar strategy at Retrophin, a company from which he was fired last year.  This situation is obviously one that is ripe for discussion.  I am especially curious about the pricing practices of earlier owners of Daraprim.  What did they have in mind when they priced Daraprim as they did?

********Due to widespread outcries over the price increase of Daraprim, Turing Pharmaceuticals has announced that it will lower the price, although it has not said by how much.  You can learn more at: http://www.wsj.com/articles/turing-to-cut-price-of-drug-daraprim-after-increase-sparks-outcry-1442970732.

(21 September 2015): “Wolf’s Return to California Stirs Debate” (http://www.wsj.com/articles/wolfs-return-to-california-stirs-debate-1442787204)

——–“The return of wolves to their former haunts across the West has reached California, where a pack of wolves was spotted for the first time in decades last month, pitting conservationists against ranchers who worry the predators will prey on livestock.”  This is the first time the wolves have been sighted in the state since 1924.  “The arrival came as California wildlife officials were still trying to complete a wolf-management plan.  Now, state officials are racing to get guidelines in place before conflicts arise, as they have in other Western states, with ranchers trying to defend their herds from predatory attacks, and with hunters who fear the animals will kill too many elk and deer.  Since the gray wolf in California is listed as endangered under both federal and state law, ranchers can’t kill or harass them, unless permitted by regulation.”  Environmentalists say the wolf’s return “is a cause for celebration, serving as another milestone in wheat they call one of the more successful wildlife recovery programs in the West.”

********The article is accompanied by a two-minute video that shows a family of seven wolves—two adults and five pups.  I just finished reading Aldo Leopold’s classic work A Sand County Almanac after many years of saying “I need to read this.”  I’m glad I did—you can learn more about it at: http://www.amazon.com/Sand-County-Almanac-Sketches-There/dp/0195007778/.  His classic article “The Land Ethic” is included and what especially caught my attention was his clear expression of a weakness of “a conservation system based wholly on economic motives.”  The weakness is that “most members of the land community have no economic value.”  Shortly afterwards, in the section titled “Substitutes for a Land Ethic,” he notes, “When one of these non-economic categories is threatened, and if we happen to love it, we invent subterfuges to give it economic importance.  At the beginning of the [20th] century songbirds were supposed to be disappearing.  Ornithologists jumped to the rescue with some distinctly shaky evidence to the effect that insects would eat us up if birds failed to control them.  The evidence had to be economic in order to be valid.”  He concludes by writing, “It is painful to read these circumlocutions today.”  Indeed, they are.  Birds, and wolves, are not the only areas of modern life that are being subjected to justification by economic valuation.  To avoid being coy, I have education, especially higher education, in mind.  Truly, not everything can, much less should, be brought into relation to the “measuring rod of money.”

********While learning just a bit more about the works of Aldo Leopold, I became aware of the fame of his book Game Management (http://www.amazon.com/Game-Management-Aldo-Leopold/dp/0299107744/), which seems to fit the oft-mentioned definition of a classic, i.e., known by many, read by few.   The Customer Reviews at Amazon are glowing, one noting that Game is “considered the ‘cornerstone of wildlife management’ by those of us in the field of wildlife biology and ecology; it is absolutely essential to anyone in this field.  ‘Game Management’ represents an intellectual revolution that is to wildlife biology what Einstein’s relativity was to physics.”  I wonder if Leopold is lurking in the background of decisions on how to manage the Sage Grouse (http://www.nytimes.com/2015/09/23/business/us-trying-to-protect-sage-grouse-without-listing-it-as-an-endangered-species.html).

(22 September 2015): “Surge in Homelessness Tests Wisconsin Capital’s Welcoming Spirit” (http://www.nytimes.com/2015/09/22/us/surge-in-homelessness-tests-wisconsin-capitals-welcoming-spirit.html)

——–Beginning October first, homeless people sleeping outside City Hall in Madison, Wisconsin will need to find a new place to rest.  “Facing a sharp increase in homelessness and fed up over what he says is a hot spot for violence and illegal activity, Madison’s Democratic mayor, Paul Soglin, successfully pushed for a measure last month that will ban anyone from sleeping at night outside City Hall, shutting down what has become Madison’ most public de facto homeless shelter.”  While attributing “the problem of homelessness in part to inadequate affordable housing, one of the lowest vacancy rates in the nation and a shortage of social workers to handle all of the newly homeless people,” Soglin “also point to Madison’s reputation as a cozy liberal bastion,” noting that “Whether it’s New York or Madison or Portland, the cities that generally do the most to help people are now rewarded with the problem increasing . . . The cities who are the most compassionate and the most generous are rewarded with other people’s problems.”

********Paul Soglin, now 70, has a long history of activism and politics in Madison, which is outlined in Wikipedia at: https://en.wikipedia.org/wiki/Paul_Soglin.  He has served as the mayor of Madison from 1973 to 1979, 1989 to 1997, and most recently from 2011 to the present, having last been reelected in April 2015.  I thought his reasoning about compassion and the homeless to be noteworthy.  Although it seems plausible, I do wonder if there is research that supports it.

(23 September 2015): “Wyoming Seeks More Funds to Clean Up Abandoned Wells” [SR](http://www.wsj.com/articles/wyoming-seeks-more-funds-to-clean-up-abandoned-wells-1442966988)

——–“Wyoming is moving forward with sweeping new rules to double the money oil and gas companies must put aside before drilling new wells, a measure prompted by the large number of abandoned wells that litter the state. . . . Wyoming and other states have struggled to plug tens of thousands of wells abandoned after the energy booms.  Without financially solvent parties to take ownership of the wells, they become the property of state governments, which must pay millions to clean them up and ensure they don’t cause environmental problems.”

********The proposed new rules, still subject to a 45-day comment period and a vote of the state oil and gas conservation commission, “would increase the amount of bonding fees companies must pay from $75,000 to $150,000.”

May you have a good week!

Bruce

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