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首页 > BGA rework station > TFN eNews 06/25/2009: “The most-ignored vital news of the week”
* The next Great Migration
* This automotive retailer has what it takes
* Noises of non-commitment
Dear TFN Reader,
It didn’t make the front page of print or web media. Probably because it was easily the most boring piece of news of the month. Only a few industry publications carried it on Monday. Here it is:
On June 18, 2009, in Guangzhou, China, the U.S. Pharmacopeial (USP) Convention reached three new cooperative agreements with Chinese drug control authorities.
You’ve probably never heard of the USP. It’s a nonprofit organization tasked with setting quality standards for prescription and over-the-counter drugs. In the United States, these rules are enforced by the FDA.
After you’ve discretely stifled a yawn, you’d say “About time that somebody did!” Especially when you remember recent problems regading contaminated China-made foodstuffs and drugs. (Pet food and the recent “Baxter Heparin Scare” come to mind.)
Indeed, the Guangzhou agreements only make up the tip of the iceberg of what Kiplinger’s calls a “sea change in food regulation”: “By the end of the year, Congress will pass legislation that brings the first major overhaul of the nation’s food safety laws in more than 70 years.”
If this seems like it’s been under the radar, it’s probably because there’s no polictical controversy. There’s a broad consensus among consumers, industry groups, scientists, the Obama machine, and both parties in Congress.
After all, who could possibly argue in favor of contaminated food and medicine? Certainly no Republican. Certainly no business. And certainly not the Chinese… who’re still smarting from the blow to their self-image and wallet caused by the dead dachshunds of the pet food scandal.
But consumer protection is just part of why business is fully behind this.
I always say that in a global economy, countries compete for manufacturing business via their labor cost and their currency. The country with the cheapest labor, pricing output at the most advantageous exchange rate, tends to get the order.
Of course, this is a gross over-simplification. Cheap labor is only good if it produces equal quality. A DVD player, a car, a complex chemical made in China can only compete if its quality is indistinguishable from counterparts made in Japan, Germany, or USA.
It’s that quality differential that we owe the remaining American automotive and industrial manufacturing jobs to. And that’s exactly why the above bit of news is so important.
You see, 75-80% of all active pharmaceutical ingredients used by U.S. drug manufacturers are now imported, mainly from India and China. So are 40% of finished “dosage forms”. Yet, as late as 2007, a Government Accountability Office audit revealed that the FDA was unable to provide inspection records for two-thirds of the 3,250 facilities then supplying the U.S. with pharmaceutical ingredients.
Currently, the FDA is able to inspect just 7% of all foreign drug manufacturers in any given year. At that rate, it would take over 13 years to inspect all. Back in 2007, China’s 714 drug manufacturers eligible for inspection were earmarked for only 13 regulatory visits by the FDA.
That means less than 2% of Chinese drug exporters had their facilities examined.
That’s about to change — with a vengeance!
Since early 2008, the China’s State Food and Drug Administration and the FDA have been hammering out new, more stringent manufacturing standards.
The new wave of legislation will make sure that the risk of supply chain contamination is reduced drastically. The Chinese have committed an initial $1.7 billion investment to more effectively monitoring the quality of the food and drugs manufactured within its borders. The State Council has vowed to place new controls on drug imports and exports by 2010.
Good news for consumers.
And good news for the pharma industry. Because Uncle Sam, on his own nickel, is removing the last obstacle to shifting not just raw materials production but the manufacture of complex pharmaceuticals to China!
Remember that quality modifier I made to my Global economy paradigm? If the quality of output is identical, manufacturers will go with the cheapest labor and the most advantageous business climate.
Here’s the inevitable outcome: Once the rigorous quality controls are fully established, U.S. pharma manufacturers will follow their colleagues from the the toy, textile, electronics, solar industries to Guangdong, Shenzen, Shanghai.
The benefits are clear: Political culture in the United States is by now fully anti-business and pro-entitlement. The U.S. pharma industry is already being painted as a major obstacle to “affordable healthcare” and a prime litigation target. High taxation and government-mandated unionization of many aspects of the labor market have already reduced the attractiveness of the United States as a manufacturing location for other industries.
The massive domestic market in China is just the icing on the cake.
To operate effectively within the Chinese system, foreign companies require well-connected partners. I believe we will start to see increased merger & acquisition activity involving American and Chinese pharma companies starting as early as this fall. In fact, I’m currently compiling a report of the most likely take-over candidates… small but well-established Chinese companies with existing high-quality manufacturing capabilities and a foot in every door that counts in Beijing.
I definitely will let you know when I’m done!
*** TFN’s Laura Cadden believes that the recent drop in the market has created the chance to pick up shares of one particular automotive retailer on the cheap. She told me about that late last week. Apparently, the market was right on her heels: “You need to act fast — the share price has gone up over 10% in just the past 2 days,” she wrote to readers of TFN’s premium service Hot Stock Confidential today.
The company has 159 new and used car dealership franchises and 34 collision repair centers in the U.S. Following the postive trends we’ve seen for used vehicle and replacement part sales — and looking at the great Q1 results for competitors like Carmax — this company has a bright future.
(May I pat my own back saying that we’ve predicted the Carmax numbers quite accurately last December?)
She thinks there’s 20% gains in this one over the next 4 months for the particular stok she selected.
I disagree. I see the upside closer to 40%.
You can either piece the information together yourself to find out what stock she recommended today… or simply join Laura’s readership… right here.
*** I loved the “tougher stance” that the White House has taken on Iran.
There was just a tiny thing I noticed: Mainstream media credited the president for saying that he personally was “appalled and outraged” at the brutal suppression of dissent in Iran. But I reviewed the video of the newsconference. I could only hear the professorial abstract that “the United States and the international community” were.
A rabble rouser he ain’t. And there certainly was no “I” in team!
It’s the politic thing to do, of course. Especially if all you want is tell the Tehran street that the Iranian cause of freedom has absolutely nothing to expect from the Hope and Change administration.
Other than non-committal noise.
“An economic collapse seems to be the goal of Congress and this administration.”
– Ron Paul, Newsmax.com
“Right out of the used-car sales book”
“Gold and Resources: 3 “Stealth Stocks” that could turn $2,500 into $25,000″
Wall Street Journal – AIG to Repay $25 Billion in Debt Through Unit IPOs “American International Group Inc. reached an agreement with the Federal Reserve Bank of New York that to pay back $25 billion in debt owed to the bank through the initial public offerings of two international life-insurance units.”
Bloomberg.com – U.S. Economy: Jobless Claims Rise in Sign Labor Market Stagnant “The number of Americans filing claims for unemployment benefits unexpectedly rose last week, a reminder that companies will keep cutting staff even as the economy stabilizes.”
Money News – Buffett: U.S. Economy in Shambles “Asked whether the economy was still in a “shambles,” as he had said in February, Buffett said: “I’m afraid that’s true.” But he added: “I don’t worry about deflation at all.”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
Article first published on Today's Financial News
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