Archive for September 9th, 2008

Executive Compensation in China

September 9th, 2008 | No Comments | Source: Economist

As China’s economy morphs from state-controlled to consumer-driven and its companies play increasingly important roles in international commerce, people naturally start to wonder about executive compensation in these companies.

An article in this week’s The Economist summarizes the results of a new study of the matter by investigators at the University of Hong Kong and Penn State. It provides enticing, though narrow insights.

The investigators studied “red chip” companies-those which operate in China, are incorporated abroad and are listed in Hong Kong. Until recently this was the traditional method by which state-controlled companies related to capital markets, and even today red chips comprise more than half the total market cap of all Chinese firms.

In these companies, executive salaries were found to average $180,000-low by international standards. Nearly every company offered stock options (valued at $140,000), but surprisingly, more than half the Chinese executives never exercised these options.

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CT Scanning: Enough Already!

September 9th, 2008 | No Comments | Source: LA Times, NEJM

Last year, US doctors ordered 68 million CT scans. That’s three times more than in 1995. There are 24,000 CT scanners in the US, or 81 scanners per million citizens. That ratio is three times higher than other western countries.

In 2000, when half as many CT scans were done, Highmark Blue Cross Blue Shield of Pennsylvania concluded that 30% of all scans and imaging procedures were inappropriate or contributed no useful information.

CT scan manufacturers such as GE and Siemens have plug-and-play business plans for physicians. The plans point out that break-even throughput is 2 scans per day for 5 years, and that it’s possible to do 20 scans per day with proper staffing and organization. In case you wondered, physicians owning CT scans are 2-7 times more likely to order them than those who refer patients to outside facilities.

Then there’s the cancer risk due to radiation exposure from CT scans. A recent article in the New England Journal of Medicine estimated that such exposure could cause 2% of all cancer deaths 20-30 years from now.

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Pharma’s Feeding Frenzy

September 9th, 2008 | No Comments | Source: Economist

Global pharmaceutical companies tend to be long on cash and short on innovation. To fix the latter, they strike deals with biotech firms including license arrangements, alliances and small acquisitions. Until recently however, Big Pharma shied away from large biotech acquisitions.

That has changed. Bristol-Meyers Squibb recently offered $4.5 billion for the 83% of ImClone that it doesn’t already own, and Roche recently offered $44 billion for the 44% of Genentech that it doesn’t own. These proposals come on the heels of large biotech acquisitions by Astra-Zeneca and Takeda.

Many factors feed the frenzy. Patents for key drugs (such as Pfizer’s Lipitor) will soon expire and when they do, Big Pharma will lose billions in revenue. Drugs from biotech goliaths can buffer these losses because they are selling well and are hard for generics manufacturers to copy. As well, the regulatory environment has turned nasty after safety scandals involving Glaxo-SmithKline’s Avandia and Merck’s Vioxx. In this environment, big biotech firms with safe, efficacious drugs on the market are safer bets than early stage firms who still must navigate the approval process.

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