The State of the Union: Fractured Social Fabric and Little Chance of Advancing Any Meaningful Legislative Reform

Posted on August 17th, 2017 in Uncategorized by Karl

Great Analysis from Alan Murray, Fortune CEO Daily. 8/17/17.

President Trump disbanded his two main business advisory councilsyesterday—but only after they had disbanded themselves. The CEOs agreed that they could not continue to be effective, given the controversy that surrounded them. “We have always believed that dialogue is critical to progress,” IBM CEO Ginni Rometty subsequently wrote to her employees, but “this group can no longer serve the purpose for which it was formed.”

A few facts:

-One group’s members made the decision on their own to disband, then informed President Trump of their decision. He then preempted them by tweeting he was ending both councils.

-Several of the CEOs were ready to resign if the group wasn’t disbanded.

-Dissatisfaction among the CEOs had been growing since the president’s decision to pull out of the Paris agreement in June, and the group has been largely dormant since. The social media campaign against some of themadded to concern, but was not the primary cause.

-While the president accused the CEOs who resigned of “grandstanding,” in fact the opposite is true. Virtually all of the CEOs were eager to avoid controversy, for the sake of their businesses.

With his ambiguous response to the unambiguous situation in Charlottesville, President Trump has now completed his alienation of the congressional leadership of his own party, his top military leadership , and his top allies in the business community. Were some anti-fascist protestors in Charlottesville carrying clubs and looking for a fight? Yes. Were some good people opposed to removing the statue of Robert E. Lee? Of course. Did press coverage oversimplify the situation? Always. But the racist and anti-Semitic origins of the Charlottesville rally were unmistakable, and the president’s reluctance to call them out was a fundamental failure of leadership.

Several CEO Daily readers have written over the past three days urging me to keep politics out of this newsletter. Would that I could. But having spent three decades covering business and politics, there is no doubt in my mind that this week’s events have not only fractured the social fabric of our nation, but also greatly reduced any chance that the president and Congress have of enacting serious legislative reforms. What began seven months ago as a once-in-a-decade opportunity for a Republican-led government to make progress on health care, infrastructure, taxes, and American competitiveness has descended into disorder. There is blame to go around for that—unsteady congressional leadership, an overzealous press corps, a determined political opposition, gun-shy CEOs. But here, as in Charlottesville, the principle source of the problem is unambiguous.

The CEOs I talked with said they will continue to engage with the administration. Many are close to Gary Cohn and Dina Powell in the White House, or cabinet officers like Steve Mnuchin, Elaine Chao, Wilbur Ross, Bob Lighthizer and others. They still feel they can get a far better hearing on their economic concerns from this administration than from the previous one, which they felt was often hostile to business.

But the fact that the nation’s leading CEOs feel they can no longer work openly with the president of the United States on measures to strengthen the U.S. economy is a sad—and unprecedented—state of affairs.

2016 Financial Markets: The First 10 trading days have been Ugly

Posted on January 19th, 2016 in Uncategorized by Karl

For the first 10 trading days of 2016, SP500 is down 8% and the biotech index (NBI) is down 16%.  Impressively bad.

Screen Shot 2016-01-19 at 9.49.28 AM

Sad Wars. The 2016 GOP Race.

Posted on January 4th, 2016 in Uncategorized by Karl

30,000 is the “New 30″

Posted on May 18th, 2015 in Uncategorized by Karl

’40 is the new 30′, ’50 is the new 30′, and so forth. We have become somewhat innured to the hopeful and/or desperate proclamations of time turned back on itself: 30 seems to be the modal choice of aspiration, epitomizing some idealized waypoint along the human lifespan, a Kodak/jpeg moment of post-adolescent, post-hookup, post-graduate, pre-arthritic, pre-plaque, developmental equilibrium. This conveniently overlooks the thirty-something angst of trying to juggle early professional aspirations and hierarchy-climbing, along with the chaotic demands of love and procreation.

’30’ in the pharma world used to be a billion dollars; the annualized benchmark for blockbuster status, the brass ring to be grabbed and clung to, if at all possible.
Now, an appraisal of deals and financings over the past eighteen months within the CNS sector suggests that there is a new ’30’, a new goalpost in a world where the goalposts are always being moved: 30,000 (plus or minus 5000, but that’s quibbling).  In an environment where going after mega-markets is a task thus far thwarted, such as in Alzheimer’s, or requires somehow leapfrogging a gaggle of generic predecessors, as in schizophrenia or depression, 30,000 has become a sought after hybrid: A big enough patient population to offer some volume of utilization, while small enough to not panic payors into adding yet another tier to their reimbursement schema.

Some examples of the new ’30′: SAGE Therapeutics estimates that there are 25,000 (close enough) cases of severe status epilepticus in the US each year. SAGE-547 in SSRE, just entering Phase III, has thus generated a market cap for SAGE that recently, albeit briefly, surpassed $1.7 billion. Auspex Therapeutics, now in Phase III with SD-809 for Huntington’s (about 30,000 patients in the US), was acquired by Teva for $3.5 billion. Avanir was acquired by Otsuka for $3.5 billion, and Avanir meets criteria by having tried Nuedexta in about 30,000 different clinical indications. Plus or minus 29,980.
With all due respect to the rare (3000) and ultra-rare (300), the sweet spot is 30,000, at least until someone cracks the code for a major disorder, like depression (well underway) or Alzheimer’s (no sign of this happening anytime soon).

Written by NeuroGram Blog May 11, 2015

Biotech versus Tech: Investment Timelines – Who’s the Tortoise?

Posted on February 24th, 2015 in Uncategorized by Karl

Posted by Bruce Booth on the Atlas Ventures Blog on 24 Feb 2015

Getting a drug from discovery to market requires more than a dozen years, so you just can’t do biotech in a 10-year venture fund – it just takes too long, right?  Fortunately, wrong.  The data just don’t support this premise, although this common misperception of biotech continue to be promulgated by industry pundits, and I hear them within the institutional investing community in particular.

I’ve written in past blogs on holding periods in VC-backed biotech, often charting data for different vintages for the sector’s time from founding to exit, for instance.  In the summer of 2011 (here), IPOs in the decade of the 2000s were explored showing no difference from other sectors. In spring 2013, largely before the current IPO window, looking at both IPOs and M&As (here), the 2009-1Q2013 dataset revealed that VC-backed biopharmaceutical companies experienced M&A and IPO events at a younger age than technology companies in that vintage.  The bias was especially true for M&A events valued at greater than $100M.

Since the public markets have changed dramatically over the past two years, I thought it worthwhile to re-examine the latest data on the venture-backed IPO Class of 2014.

According to Thomson Reuters data shared by the National Venture Capital Association (NVCA), there were 114 venture-backed IPOs in 2014. Pie chart of IPOsThis doesn’t include IPOs that didn’t have US-based venture capital investors involved or were on foreign exchanges. The majority of these venture-backed IPOs were in the Biotech sector (56%), as per the pie chart here.

These ThomsonOne data also track the initial investment date for these companies, enabling one to examine the “time from first investment to IPO” for the dataset. The two charts below depict both a summary distribution (with terminal deciles, quartiles, and median data) as well as a cumulative distribution (with each company datapoint for Software and Biotech).

Time From VC-Investment to IPO_Feb2015

As the charts above reveal, Biotech’s median time to IPO was essentially identical to Software and other VC subsectors. However, the faster end of the data’s distribution is strongly skewed towards Biotech: 33% of Biotech’s 2014 IPOs occurred within five years or less of their initial investment date versus only 20% of the offerings in software and other VC subsectors. Some of these have been incredibly fast, like Juno Therapeutics, Loxo Oncology, and Atara all going public less than two years from their initial venture investment.  This skew in the distribution explains why Biotech as a sector has a ~10% faster arithmetic mean (average) time to IPO than Software: 7.4 years versus 8.0 years, respectively.

There are many reasons for this faster path to IPO in biotech, and the topic was explored in detail in an earlier post (here).  Simply put, in biotech we are largely taking exciting R&D-stage companies with enormous promise and financing them in the public markets to develop their drug candidates further, whereas in software, the buyside typically requires $100M+ revenue run rates with double-digit growth multiples and often profitability in order to get public.  These are very different types of businesses, and the latter often takes many years to build.

So in the more recent vintage of IPOs the conclusion still hold: Biotech is certainly not the tortoise of venture capital.  The time period from first funding to IPO is at least as fast, if not faster, in Biotech as it is for other venture sectors.

It might seem redundant with past blog posts, but more data, and more recent data, confirming the same findings are always helpful in framing investment perspectives about the sector.


Private Companies Dreaming of an IPO: Be careful what you wish for!

Posted on February 23rd, 2015 in Uncategorized by Karl

The following is a blog entry write by Ron Renaud, CEO of RaNA Therapeutics on 2/23/2015:

Three years ago, I was walking across One Kendall Square in pursuit of a late lunch and bumped into a friend – another biotech CEO. I was a year into my role as CEO of Idenix, a publicly traded biotech focused on hepatitis C. My friend was CEO of his respective private biotech for many years. The two of us had known each other for a long time and exchanged a few quick updates on our respective companies. Before we parted, he asked me if he could “pick my brain” on being a public company CEO as he was thinking about taking his successful private company public. I responded – “be careful what you wish for” but was happy to have that future chat with a good friend. As I walked away from that brief conversation, I was surprised at how quickly my sarcastic response came out and have reflected on it many times.

My response about being a public company CEO at the time reflected the culmination of many years in the world of publicly traded biotech; first at Amgen in a number of positions in clinical research, investor relations and finance. Following my years at Amgen, I analyzed (sometimes criticized) the prospects of publicly traded biotechs as a sell-side analyst at firms such as Bear Stearns and JP Morgan. Within the last nine years, I have been back inside a couple of publicly traded biotechs as a CFO, CBO and CEO.

In all of the career moves above, I realized that the genetic material that enables one to deal with the anxiety of quarterly updates, conference calls, clinical holds, writing reports and analyst meetings is incorporated into our DNA early in our careers. For nearly twenty years, I have had a calendar that has been blocked from the beginning of January through the end of February as well as the last two weeks of April, July and October to prepare for earnings or an update either as an insider reporting the information or as an analyst trying to make sense of it. It is not uncommon for a publicly traded management team to spend an inordinate number of hours crafting the right public disclosure such as a press release or an SEC filing. Beyond the normal quarterly financial updates, there are the countless unexpected events such as clinical trial results, manufacturing delays and legal updates that are often deemed material to a small company thus requiring some level of public disclosure. This is certainly not unique to our industry either but I do believe early stage, public biotechs are a different entity than early stage tech companies that often have revenues and an established platform.

So why was my immediate, knee-jerk reaction to tread carefully into the public landscape? The clarity to answer this has come now that I have joined privately held RaNA Therapeutics as its CEO but I need to digress to explain. When I became CEO of Idenix in October of 2010 it was the weekend before the American Association for the Study of Liver Diseases (AASLD), which is a big meeting in the HCV world. We had planned a large analyst meeting at the conference to discuss our recent clinical holds, pipeline progress and future plans. I was quite excited to get in front of analysts, investors, and key opinion leaders as a new CEO. I was also looking forward to getting past AASLD and getting back to Idenix to spend time with our staff figuring out how we were going to move forward. It was nearly a month before I felt I could hunker down with the team and forge my own strategy for Idenix. Even at that – time was so limited as we had to start preparing for upcoming presentations and meetings at JP Morgan. Frustrated, I often asked my team how we were going to establish a direction for Idenix when we were spending so much time dealing with the outside world. Even when there was time to have the strategic discussions, the most sensitive discussions had to be weighed against “material impact” and public disclosure requirements. This is not by any means advocating against transparency or cutting corners – my point is that it inevitably factors into the decision-making process. A decision to wait for an additional assay result, explore an alternative synthesis route or find another CRO must be weighed against knowledge that certain analysts, investors and competitors might deem it a setback.

As a private biotechnology company this decision-making might simply be called getting it right before you move forward. Even good news, while always welcomed, can be a time-consuming distraction as getting the public message right often requires the input of the CMO, CSO, lawyers, CFO and CEO. The public company board of directors also has significantly different responsibilities than private companies. Thankfully, we had a great team at Idenix that could pull together in good times and bad. I was always more comfortable though when they were discovering, developing and building.

When I think back, I can count on both hands, the number of times as the CEO of Idenix that I informally asked investment bankers about the feasibility of taking Idenix private. Those conversations were usually at the end of a long day on the phone after a tough press release. We had our share of those at Idenix.

Digression over. Idenix was sold to Merck in the summer of 2014 and I joined a private biotech called RaNA Therapeutics in mid-November 2014. This is my first job at a private biotech. I stressed a bit about the press release announcing my new job but was quickly advised that we did not need to put out a press release right away and that we should wait to avoid the Thanksgiving holiday and ASCO rush. Instead of spending my early days at RaNA wordsmithing a press release, I could actually spend some time on RaNA. This period of time gave me a good head start to meet with many of our staff on a one-on-one basis to get to know them, their strengths and their perspectives on how RaNA will succeed. I was able to continue those meetings throughout December as well as get adequately prepared for my first board of directors meeting (private company note: I was chastised for wearing a suit during the scientific session of our BOD meeting – I did wear jeans on day 2). I could also spend ample time with our Chief Scientific Officer, Jim Barsoum to get fully up to speed on our programs, previous business development discussions and requirements for new lab space. Additional time with our scientific founder, board members and advisors was invaluable during my first few weeks. I was also able to spend the entire time at JP Morgan with our CSO meeting with potential collaborators and investors. I must say it did feel strange to not have 50 one-on-one meetings to discuss the potential impact on stock price from a 4 log drop in HCV viral loads but I am getting used to it. Either way, I feel like I can articulate a vision for RaNA in my early days here because of the amount of time I can be immersed in our company.

Just as I always imagined – there is significantly more time to focus on the science and internal issues in the private world. It comes at a cost though as human and financial resources are notoriously limited for many private biotechs.  It highlights the undeniable importance of having the best people and being prepared.  As a private company, we are not thinking about being public someday. That may happen but we are thinking about what it will take for RaNA to be successful today, tomorrow and for the foreseeable future. This means taking the available and precious time to get the best people, build a culture with a cohesive and entrepreneurial spirit, establish deep and strong scientific integrity and an ability to create significant value for current and future shareholders. A disciplined focus on laying this foundation will set the tone for RaNA in any setting as we move forward.

Private company CEOs have the luxury of building our companies with a careful urgency that is not hampered by public pressure. I may be early in my private company career but I plan to take full advantage of that! We can make mistakes (sometimes called science) without worrying about what the public perception (or misperception) will mean. We can get the right people in the right positions to prepare for life after being private. It should not simply be about “getting public”; it should be about being a great private biotech company that can be a strong player in the public markets should it choose to do so. The biotechnology industry has enjoyed a very welcoming IPO market over the last few years but those days will not last forever. I see this as motivation to focus on building a solid and successful private company.

Going from many years in the public biotech sector into a private situation is a bit backwards but it gives me a different perspective than the usual private to public route. I feel like I am getting a chance to help build something versus trying to explain to the Street how we are going fix something. This excitement may also just be my unique career and experience. Interestingly, I know a few biotech CEOs of recent IPOs that pine for their private days.

As they say, the grass is always greener…

How Low Can Oil Go?

Posted on December 16th, 2014 in Uncategorized by Karl
The article below argues that a 2-3% increase in supply (Libya and US shale) combined with a slowdown in the economy in the US, Europe and China is responsible for the 40% drop in oil prices in the past six months.  
The New Yorker, 12/16/2014.  By: James Surowiecki

Just in time for Christmas, there’s a surprise present for consumers: plummeting oil prices. They have fallen forty per cent since July—gasoline now costs well below three dollars a gallon—saving Americans hundreds of millions of dollars a day. This has been a mini-stimulus for the economy, and one that was almost completely unexpected. Before the summer, prices had been high for years. Despite a lot of geopolitical turmoil and macroeconomic anxiety, the oil market had been remarkably stable, and it seemed possible that, as one study put it, “hundred-dollar oil is here to stay.” But in a matter of months all that changed.

So what happened? At the most basic level, it’s a simple supply-and-demand story. Europe’s continued troubles and a slowdown in the Chinese economy muted the demand for oil. Meanwhile, the U.S. shale-oil boom and a rebound of drilling in Libya boosted supply. “Libya’s ramping up of production caught people genuinely off guard,” Steven Kopits, the managing director of Princeton Energy Advisors, told me. “That’s the kind of thing that’s hard to predict unless you have really good intelligence assets on the ground.” The result was that the market was producing many more barrels of oil a day than were consumed. As oil was dumped on the market, prices inevitably fell.

Such volatility is exactly what the history of oil prices would lead us to expect. Commodities are more volatile than other assets—the price of copper fluctuates a lot more than that of a television set—and oil has historically been more volatile than most other commodities; a 2007 study found that in the U.S. it was more volatile than ninety-five per cent of other products. The biggest reason for this volatility is that short-term supply and demand for oil are what economists call “price-inelastic,” which means that they don’t respond much when the price of oil changes. People don’t immediately start driving less when gasoline prices spike—they just pay more for gasoline. On the supply side, drilling projects take a long time to start up or to shut down, so higher prices don’t immediately translate into more supply, or lower prices into less. This means that the way prices typically return to normal—through increasing supply or diminishing demand—doesn’t really happen in the oil market. So a two- or three-per-cent change in supply, which is about how much the shale boom and the Libyan rebound added to global daily production, can spark a huge move in price.

In recent years, hedge funds and commodity-index funds have put hundreds of billions into the oil market, and studies suggest that this flood of investment may have increased the market’s volatility. By its nature, oil trading is beset by uncertainty. It’s not just the precarious geopolitics of where most of the world’s oil reserves are. There’s also the fact that predicting future demand requires forecasting the performance of the entire world economy.

You might think that the existence of OPEC would guarantee stability. But OPEC is weaker than it once was, thanks to the emergence of big non-OPEC oil producers, like the U.S. Besides, enforcing stability at a time of falling prices is easier said than done. OPEC’s members face a classic collective-action problem. They’d be better off ultimately if they all agreed to curb production—Saudi Arabia, in particular, would have to cut back—but individually they have a greater incentive to continue pumping. And the Saudis know from history that cutbacks don’t always work. In the early nineteen-eighties, they slashed output in an attempt to prop up energy prices. “They cut production and cut production and cut production, and all it did, more or less, was wreck their economy for the next twenty years,” Kopits said. “This time around, they’re drawing a line in the sand and saying We’re going to keep pumping, and everyone else is going to have to adjust around us.”

The shale-oil boom has added to uncertainty, too. OPEC has no control over what U.S. producers do. And even though shale-oil producers often face higher production costs than traditional drillers do (which should make them quick to cut production when prices fall), many also have debt payments to make and fixed costs to meet if they don’t want to go out of business. So they’re likely to keep pumping, since that keeps revenue coming in until (they hope) the price recovers. But continuing to pump, of course, makes it harder for prices to stabilize.

It would be a mistake for oil producers to expect a return to the high, stable prices of recent years. By the same token, American consumers shouldn’t get too used to cheap gas, since in the long run low oil prices erode the conditions that brought them about. Producers are already starting to adjust: ConocoPhillips just announced that it’s cutting its drilling budget. And, because cheap oil gives everyone an economic boost, eventually it leads to higher demand. We’re awash in oil right now. Soon enough, we may be wondering where it all went. ♦

Oil Needs to Drop Below $18 Before US Shale Goes Bust

Posted on December 9th, 2014 in Uncategorized by Karl

Forbes, December 9, 2014

Oil prices have a lot more room to fall before things get really scary. Here’s why.

The recent drop in crude prices won’t kill off the US shale oil industry. It’ll just make it more efficient.

Profit margins and break-even points are relative not only to the price of oil, but also to the cost of doing business. As oil prices drop, producers will undoubtedly renegotiate their ludicrously expensive oil service contracts, slash wages for their workforce and cut perks to bring their costs in line with the depressed price for crude. The demand for oil remains strong, which should provide an adequate floor for producers in the long run, but only after they get their finances in order.

How oil prices ever reached $100 a barrel still remains a mystery to many who have followed the industry for years. But the 40% drop in oil prices over the past six months has been shocking for oil bears and bulls alike. Why on earth did it fall so hard, so fast? There is plenty of speculation, ranging from the Saudi’s wish to “crush” the U.S. shale industry, to the U.S. colluding with the Saudi’s to flood the market in order to bankrupt an aggressive Russia and an obstinate Iran.

Conspiracy theories aside, the fact is oil prices have dropped and they may stay “low” for a while. This has analysts, journalists, and pundits running around claiming that it’s the end of the world.

It is understandable that people are nervous. After all, the oil industry is a major producer of jobs and wealth for the U.S. It contributes around $1.2 trillion to U.S. GDP and supports over 9.3 million permanent jobs, according to a study from The Perryman Group. Not all that money and jobs come directly from the shale oil industry or even the energy industry as a whole but instead derive from the multiplier effect the industry has on local economies. Given this, it’s clear why any drop in the oil price, let alone a 40% drop, is cause for concern.

Nowhere in the U.S. is that concern felt more acutely than in Houston, Texas, the nation’s oil capital. The falling price of crude hasn’t had a major impact on the city’s economy, at least not yet. But people, especially the under-40 crowd—the Shale Boomers, as I call them—are starting to grow very worried. At bars and restaurants in Houston’s newly gentrified East End and Midtown districts, you often hear the young bucks (and does) comparing notes on their company’s break-even points with respect to oil prices. Those who work for producers with large acreage in the Bakken shale in North Dakota are saying West Texas Intermediate (WTI) crude needs to stay above $60 a barrel for their companies to stay in the black. Those who work for producers with large acreage in the Eagleford shale play in south Texas say their companies can stay above water with oil as low as $45 to $50 a barrel.

Both groups say that they have heard their companies are starting to walk away from some of the more “speculative” parts of their fields, which translates to a decrease in production, the first such decrease in years. This was confirmed Wednesday when the Fed’s Beige Book noted that oil and gas activity in North Dakota decreased in early November due to the rapid fall in oil prices. Nevertheless, the Fed added the outlook from “officials” in North Dakota “remained optimistic,” and that they expect oil production to continue to increase over the next two years.

What are these “officials,” thinking? Don’t they worry about the break-even price of oil? Sure they do, but unlike the Shale Boomers, they also probably remember drilling for oil when it traded in the single digits, which really wasn’t that long ago. For these seasoned oil men, crude at $60 a barrel still looks mighty appealing.

Doug Sheridan, the founder of EnergyPoint Research, which conducts satisfaction surveys, ratings, and reports for the energy industry, recalls when he had lunch with an oil executive of a major energy giant 10 years ago who confided in him that his firm was worried that oil prices had risen too high, too fast. “He was concerned that the high prices would attract negative attention from the press and Congress,” Sheridan told Fortune. “The funny thing was, oil prices were only around $33 a barrel.”

The shale boom has perpetuated the notion that drilling for oil, especially in shale formations, is somehow super complicated and expensive. It really isn’t. Fracking a well involves just shooting a bunch of water and chemicals down a hole at high pressure—not exactly rocket science. The drilling technique has been around since the 1940s, and the energy industry has gotten very good at doing it over the decades. Recent advances in technology, such as horizontal drilling, have made fracking wells even easier and more efficient.

But even though drilling for oil has become easier and more efficient, production costs have gone through the roof. Why? There are a few reasons for this, but the main one is the high price of oil. When oil service firms like Halliburton and Schlumberger negotiate contracts with producers, they usually take the oil price into consideration. The higher the oil price, the higher the cost for their services. This, combined with the boom in cheap credit over the last few years, has increased demand for everything related to the oil service sector—from men to material to housing. In what other industry do you know where someone without a college degree can start out making six figures for doing manual labor? You can in the oil and gas sectors, especially in places like Western North Dakota. There, McDonald’s employees make $20 an hour and rent for a modest place can top $2,000 a month.

But as the oil price drops, so will costs, bringing the “break-even” price down with it. Seasoned oil men know how to get this done—it involves a little Texas theater, which is sort of like bargaining at a Turkish bazaar. The producers will first clutch their hearts and tell their suppliers that they simply cannot afford to drill any more given the sharp slump in oil prices. Their suppliers will offer a slight discount on their services but the producer will say he’s “walking away.” This is where we are in the negotiating cycle.

After letting the oil service firms sweat a bit (traditionally around two to four months), a producer will give their former suppliers a call, saying they are “thinking” of getting back in the game. Desperate for work, the suppliers will now be willing to renegotiate a whole new agreement based on a lower oil price. The aim of the new contract is to give producers close to the same margin they had when prices were much higher. Profits are restored and everyone is happy.

This negotiation will happen across all parts of the oil and gas cost structure. So welders who were making $135,000 a year will probably see a pay cut, while the administrative staff back at headquarters will probably miss out on that fat bonus check they have come to rely on. Rig workers and engineers will see their pay and benefits slashed as well. Anyone who complains will be sent to Alaska or somewhere even worse than Western North Dakota in the winter, like Siberia (seriously). And as with any bursting bubble, asset prices will start to fall for everything from oil leases to jack-up rigs to townhouses in Houston. Oh, and that McDonald’s employee in Western North Dakota will probably need to settle for $15 an hour.

But oil production will continue, that is, until prices reach a point at which it truly makes no sense for anyone to drill anywhere.

So, what is the absolute lowest price oil can be produced for in the U.S.? Consider this—fracking last boomed in the U.S. back in the mid-1980s, when a barrel of oil fetched around $23. That is equivalent to around $50 a barrel today, when adjusted for inflation. That fracking boom went bust after prices fell to around $8 a barrel, which is worth around $18 in today’s money. With oil last week hitting $63 a barrel, it seems that prices have a lot more room to fall before things get really scary.

How Medical Care is Being Corrupted (NYT, 11/21/2014)

Posted on November 21st, 2014 in Uncategorized by Karl

WHEN we are patients, we want our doctors to make recommendations that are in our best interests as individuals. As physicians, we strive to do the same for our patients.

But financial forces largely hidden from the public are beginning to corrupt care and undermine the bond of trust between doctors and patients. Insurers, hospital networks and regulatory groups have put in place both rewards and punishments that can powerfully influence your doctor’s decisions.

Contracts for medical care that incorporate “pay for performance” direct physicians to meet strict metrics for testing and treatment. These metrics are population-based and generic, and do not take into account the individual characteristics and preferences of the patient or differing expert opinions on optimal practice.

For example, doctors are rewarded for keeping their patients’ cholesterol and blood pressure below certain target levels. For some patients, this is good medicine, but for others the benefits may not outweigh the risks. Treatment with drugs such as statins can cause significant side effects, including muscle pain and increased risk of diabetes. Blood-pressure therapy to meet an imposed target may lead to increased falls and fractures in older patients.

Physicians who meet their designated targets are not only rewarded with a bonus from the insurer but are also given high ratings on insurer websites. Physicians who deviate from such metrics are financially penalized through lower payments and are publicly shamed, listed on insurer websites in a lower tier. Further, their patients may be required to pay higher co-payments.

These measures are clearly designed to coerce physicians to comply with the metrics. Thus doctors may feel pressured to withhold treatment that they feel is required or feel forced to recommend treatment whose risks may outweigh benefits.

It is not just treatment targets but also the particular medications to be used that are now often dictated by insurers. Commonly this is done by assigning a larger co-payment to certain drugs, a negative incentive for patients to choose higher-cost medications. But now some insurers are offering a positive financial incentive directly to physicians to use specific medications. For example, WellPoint, one of the largest private payers for health care, recently outlined designated treatment pathways for cancer and announced that it would pay physicians an incentive of $350 per month per patient treated on the designated pathway.

This has raised concern in the oncology community because there is considerable debate among experts about what is optimal. Dr. Margaret A. Tempero of the National Comprehensive Cancer Network observed that every day oncologists saw patients for whom deviation from treatment guidelines made sense: “Will oncologists be reluctant to make these decisions because of an adverse effects on payments?” Further, some health care networks limit the ability of a patient to get a second opinion by going outside the network. The patient is financially penalized with large co-payments or no coverage at all. Additionally, the physician who refers the patient out of network risks censure from the network administration.

When a patient asks “Is this treatment right for me?” the doctor faces a potential moral dilemma. How should he answer if the response is to his personal detriment? Some health policy experts suggest that there is no moral dilemma. They argue that it is obsolete for the doctor to approach each patient strictly as an individual; medical decisions should be made on the basis of what is best for the population as a whole.

Medicine has been appropriately criticized for its past paternalism, where doctors imposed their views on the patient. In recent years, however, the balance of power has shifted away from the physician to the patient, in large part because of access to clinical information on the web.

In truth, the power belongs to the insurers and regulators that control payment. There is now a new paternalism, largely invisible to the public, diminishing the autonomy of both doctor and patient.

In 2010, Congress passed the Physician Payments Sunshine Act to address potential conflicts of interest by making physician financial ties to pharmaceutical and device companies public on a federal website. We propose a similar public website to reveal the hidden coercive forces that may specify treatments and limit choices through pressures on the doctor.

Medical care is not just another marketplace commodity. Physicians should never have an incentive to override the best interests of their patients.

Pamela Hartzband and Jerome Groopman are physicians on the faculty of Harvard Medical School and co-authors of “Your Medical Mind: How to Decide What is Right for You.”

ISIS and SISI – Both are doomed

Posted on June 25th, 2014 in Uncategorized by Karl

By Thomas Friedman, NYTimes 6/25/2014

The past month has presented the world with what the Israeli analyst Orit Perlov describes as the two dominant Arab governing models: ISIS and SISI.

ISIS, of course, is the Islamic State in Iraq and Syria, the bloodthirsty Sunni militia that has gouged out a new state from Sunni areas in Syria and Iraq. SISI, of course, is Abdel Fattah el-Sisi, the new strongman/president of Egypt, whose regime debuted this week by shamefully sentencing three Al Jazeera journalists to prison terms on patently trumped-up charges — a great nation acting so small.

ISIS and Sisi, argues Perlov, a researcher on Middle East social networks at Tel Aviv University’s Institute for National Security Studies, are just flip sides of the same coin: one elevates “god” as the arbiter of all political life and the other “the national state.”

Both have failed and will continue to fail — and require coercion to stay in power — because they cannot deliver for young Arabs and Muslims what they need most: the education, freedom and jobs to realize their full potential and the ability to participate as equal citizens in their political life.

We are going to have to wait for a new generation that “puts society in the center,” argues Perlov, a new Arab/Muslim generation that asks not “how can we serve god or how can we serve the state but how can they serve us.”

Perlov argues that these governing models — hyper-Islamism (ISIS) driven by a war against “takfiris,” or apostates, which is how Sunni Muslim extremists refer to Shiite Muslims; and hyper-nationalism (SISI) driven by a war against Islamist “terrorists,” which is what the Egyptian state calls the Muslim Brotherhood — need to be exhausted to make room for a third option built on pluralism in society, religion and thought.

The Arab world needs to finally puncture the twin myths of the military state (SISI) or the Islamic state (ISIS) that will bring prosperity, stability and dignity. Only when the general populations “finally admit that they are both failed and unworkable models,” argues Perlov, might there be “a chance to see this region move to the 21st century.”

The situation is not totally bleak. You have two emergent models, both frail and neither perfect, where Muslim Middle East nations have built decent, democratizing governance, based on society and with some political, cultural and religious pluralism: Tunisia and Kurdistan. Again both are works in progress, but what is important is that they did emerge from the societies themselves. You also have the relatively soft monarchies — like Jordan and Morocco — that are at least experimenting at the margins with more participatory governance, allow for some opposition and do not rule with the brutality of the secular autocrats.

Indeed, the Iraq founded in 1921 is gone with the wind. The new Egypt imagined in Tahrir Square is stillborn. Too many leaders and followers in both societies seem intent on giving their failed ideas of the past another spin around the block before, hopefully, they opt for the only idea that works: pluralism in politics, education and religion. This could take a while, or not. I don’t know.

We tend to make every story about us. But this is not all about us. To be sure, we’ve done plenty of ignorant things in Iraq and Egypt. But we also helped open their doors to a different future, which their leaders have slammed shut for now. Going forward, where we see people truly committed to pluralism, we should help support them. And where we see islands of decency threatened, we should help protect them. But this is primarily about them, about their need to learn to live together without an iron fist from the top, and it will happen only when and if they want it to happen.