How Trump Plans to Upend Pharma

  • How an overreaction to “thalidomide babies” stifled 50 years of drug innovation…
  • … and how Trump might be about to change everything
  • Trump’s $1 trillion infrastructure bonanza already shrinks to $550 billion
  • A year and a half of hard times in rural America
  • Suspected gold flake thief nabbed… when Agora Financial editors disagree… recovered history about Chelsea Manning’s most important disclosure… and more

For as skeptical as we’ve been about President Trump’s ability and willingness to “drain the swamp”… it does appear he’s on the verge of making one radical change with the potential to save billions of dollars and countless lives.

The story is still flying under the radar… but it has the potential to light a new fire under the biotech sector, one that would burn profitably for years.

Word first surfaced 10 days ago in the inside pages of The Wall Street Journal: “Trump is reaching beyond traditional medical experts in his search for a new Food and Drug Administration commissioner, scheduling meetings for the FDA job with two Silicon Valley investors backed by billionaire investor Peter Thiel.”

Says Ray Blanco of our science-and-wealth team: “Either of these candidates could completely upend the way this regulator does its job, opening up this huge market for highly profitable disruption.”

More about who they are in a moment. First, some essential background the Journal skimmed over in its story…

When it comes to modern-day U.S. drug regulation, it usually begins with thalidomide.

Thalidomide is a sedative that became available over the counter in 1957 in West Germany. Pregnant women took it for anxiety and morning sickness. Within months, West German women gave birth to some 6,000 babies with malformed arms or legs; only 40% of those babies survived.

Worldwide, the number of affected babies was estimated at 10,000, about half of whom survived.

Here in the United States, the FDA never approved thalidomide. But politicians being politicians, the Beltway class still felt the urge to “do something” in response to the headlines from elsewhere — especially Canada, where the drug was banned in 1962, only months after going on sale. Life magazine gave thalidomide prominent play on the cover of its Aug. 10, 1962, issue (alongside a curious picture of Janet Leigh not long after she and Tony Curtis divorced)…

It was during that summer of 1962 when Sen. Estes Kefauver (D-Tennessee) pushed through an amendment to the 1938 Federal Food, Drug and Cosmetic Act. It required that the makers of new drugs coming to market prove not only their safety but also their efficacy.

Ever since, safe and effective” have been the watchwords for FDA bureaucrats. It’s the “effective” part that Trump’s new FDA chief might well change.

One of the venture capitalist candidates is Jim O’Neill. In a 2014 speech, he said, “We should reform FDA so there is approving drugs after their sponsors have demonstrated safety — and let people start using them, at their own risk, but not much risk of safety. Let’s prove efficacy after they’ve been legalized.”

The other venture capitalist candidate, Balaji Srinivasan, is on the same page, Ray tells us: “He believes for every life saved from blocking a bad drug, many have been lost waiting for a good one.”

The impact of this change would be staggering, Ray goes on: “It would reduce the amount of time lifesaving new drugs need to get to market. It would also reduce the prices of new drugs, since it would make pre-commercial development less expensive.”

And there’s another even more startling angle, another one The Wall Street Journal overlooked.

“O’Neill,” Ray tells us, “is on the board of the SENS Research Foundation. I attended a SENS conference late last year in California where I listened to and spoke with speakers presenting on exciting new anti-aging science.

“For the FDA to recognize this science and stop blocking it would change the U.S. forever.

“Right now, the FDA doesn’t treat aging itself as a disease. It treats as diseases what can be considered aging’s symptoms — diabetes, cancer, heart disease and much more. It recognizes the symptoms… but not the source.

“For the FDA to recognize aging itself as a root cause that can be addressed by approved products would open the floodgates to a tidal wave of new rejuvenative therapies.”

We’ll monitor this story closely as Trump continues to put his team together; Ray follows the FDA as closely as anyone for our FDA Trader service. In fact, he tells us the agency is due to make a decision this week on a drug with blockbuster sales potential. You can learn more by following this link; just know that time is of the essence.

On the first full business day of the Trump presidency, the major U.S. stock indexes are in the red.

Jim Rickards said the first days of the administration would be about “action,” and that’s surely the case with the morning’s headlines: Team Trump has confirmed the president will sign an executive order to renegotiate the NAFTA trade deal with Canada and Mexico. Meanwhile, the president told business leaders at the White House this morning he wants to cut regulations by 75% or “maybe more.”

Amid those cross-currents, all the major indexes are down half a percent, give or take — the Dow at 19,739. Health care is taking a hit because a federal judge has blocked the Aetna-Humana merger on antitrust grounds.

Treasury yields are backing off, the 10-year at 2.4%. The dollar index is retesting recent lows at 100.2, and gold is retesting recent highs at $1,218.

Talk about dialing down expectations: One of Trump’s infrastructure advisers is already saying that $1 trillion infrastructure program might be more like $550 billion.

Richard LeFrak is a billionaire real estate tycoon, and one of two people Trump has named to lead an “infrastructure advisory council.”

“There’s going to be a little bit of tug of war between the conservatives and the Republican Party who are concerned about deficits and the president, who’s concerned about jobs,” LeFrak tells CNBC.

Gee, where’ve we been hearing that? Oh yes, our own David Stockman has been saying it for weeks. We weren’t, however, counting on his forecast coming together quite so soon…

“If Trump even gets a tax bill through the Congress in two years, it will be a miracle,” says David by way of update this morning.

“Even then it is likely to be close to revenue neutral. It might well embody helpful reform for long-run growth, but at close to a net zero percent of GDP, it will deliver no Reagan-style jolt to the economy in the near term.

“The reason that corporate rate reduction will need to be ‘paid for’ — via base broadening or a border-adjusted tax on imports, as proposed by the House GOP — is that Uncle Sam is flat broke.”

As David’s been reminding us since late last year, the debt ceiling — suspended under a deal between Obama and House Speaker Paul Ryan since October 2015 — comes back into force on March 15. The Treasury can resort to a few accounting tricks to keep government running as usual for a while, but “by the Fourth of July,” David says, “the Trump administration will be out of cash.

“All of the so-called ’stimulus’ legislation — tax cuts, infrastructure, the defense buildup and the Mexican wall/border control — will be backed up in a giant political/legislative logjam awaiting congressional action to increase the debt ceiling by at least $2 trillion.”

What Trump’s infrastructure adviser calls “a little bit of tug of war”? David says Washington “will descend into a protracted period of political paralysis and mayhem.”

As Trump takes office, the rural economy is now in its 18th straight month of shrinkage.

Economist Ernie Goss at Creighton University in Omaha conducts a monthly survey of bank CEOs in rural areas of 10 states stretching from Illinois to Colorado, and the Dakotas to Kansas. These are regions dependent on agriculture, energy or both; seven of the 10 states voted for Trump. Goss compiles the CEOs’ responses into the Rural Mainstreet Index. Like many similar economic measures, numbers above 50 indicate growth and numbers below 50 indicate contraction.

The January number is 42.8. That’s little changed from December, but it’s a substantial improvement from last October’s 31.8, which was the lowest since early 2009.

The big drag on the number is weak prices for grains and livestock…

The suspect in New York’s Great Gold Flake Theft has been caught… but where’s the gold?

In September, a man spotted a bucket filled with 86 pounds of gold flakes in the back of an unattended armored car. He snagged the bucket and vanished. In late November, the NYPD released surveillance video in the hopes of tracking him down…

Cops say the suspect is only 155 pounds, so carrying the 86-pound bucket was a chore…

Shortly before Christmas, police identified their man as Julio Nivelo. They say he fled to Orlando, and then to Los Angeles.

Last Thursday, he was arrested in his native Ecuador. Police will pursue extradition to the United States.

But the gold? Police aren’t saying.

From the get-go, we said gold flakes — shavings from the work jewelers do with gold — are a heck of a lot harder to pawn than coins or jewelry…

“Zach Scheidt’s enthusiasm for bank stocks conflicts with the narrative of Jim Rickards’ books and David Stockman,” a reader writes after Friday’s episode.

“They both predict the collapse of central banks and worldwide economic downturn and say that too-big-to-fail banks are now even larger, with further concentration of wealth; that low interest rates have driven said banks toward off-book paper derivatives for higher yields; and that when one bank collapses, there will be a ripple effect worse than 2007.

“So how do these different branches of Agora reconcile?”

The 5: At the risk of repeating ourselves, we don’t enforce any orthodoxy here at Agora Financial.

We think we deliver a better suite of services when we let our editors speak as freely as possible, and we respect the reader’s intelligence enough to sort out differences of opinion for himself or herself. We mused on this subject for an entire episode of The 5 one day late in 2014 if you want to see our reasoning in depth.

And Zach isn’t oblivious to your concerns: “Yes, many stocks are expensive compared with historical standards,” he wrote his Lifetime Income Report readers last summer. “Investors are more willing to buy stocks, because they are getting zero returns on savings accounts and paltry returns on traditional bonds. So they’re buying stocks, and the demand has pushed prices higher.

“As long-term income investors, it is important for us to balance the risk of stocks trading lower with our need to generate income. I’m constantly looking for positions that are not trading at excessively high prices while still paying lucrative dividends… Our No. 1 pillar of successful investing is to protect our capital.”

“I’d like to take a shot at celebrating Chelsea Manning,” a reader writes after we commemorated the financial revelations she made possible.

“Naturally, the military wanted to keep secret our war crimes in Iraq. Chelsea prevented that. When the time came for the Iraqi government to renew their permission for us to be there, they refused because we wouldn’t agree to their insistence on prosecuting our people for war crimes. They threw us out!

“This is a fact conveniently forgotten by those who want to claim that we left Iraq too soon.

“To my mind, it’s a wonderful thing that there are no secrets anymore. Chelsea was the first to point that out, and I credit her with being the main reason we withdrew from Iraq. Thank you, Chelsea.”

The 5: That’s an important historical point. Bush negotiated an exit plan for U.S. troops in Iraq as he was leaving office, with a deadline for withdrawal of year-end 2011. Obama tried to go back on the deal, but the sticking point was a SOFA — a “status of forces agreement” guaranteeing that U.S. troops accused of wrongdoing would be tried under U.S. law and not Iraqi law.

In May 2011, WikiLeaks published one of the diplomatic cables released by Manning. As McClatchy Newspapers reported, the cable “provides evidence that U.S. troops executed at least 10 Iraqi civilians, including a woman in her 70s and a 5-month-old infant, then called in an airstrike to destroy the evidence, during a controversial 2006 incident in the central Iraqi town of Ishaqi.”

With that information public, there was no way Iraqi leaders could agree to a SOFA and keep the support of the people. U.S. troops were gone from Iraq, on schedule, at the end of 2011.

Of course, they returned with the rise of ISIS in mid-2014, but that’s another story…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. One of our leading analysts says Trump is set to unleash an $11.1 trillion tsunami in the markets…

Now that he’s taken office, dozens of tiny firms could skyrocket by 100%, 300% and even 721%.

This is your chance to turn a small stake of $100… into a life-changing fortune.

Click here to find out how.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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