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We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.
The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.
These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.
When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?
Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.
Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.
Home / Personal Finance / On Topic / Health Care
Monday, June 16, 2008
Big Pharma turns to China, India to Test Drugs
Donna Fuscaldo
FOXBusiness
New York--With pharmaceutical companies facing slower growth and a dearth of new medicines in the pipeline, there’s increased pressure
to quickly bring drugs to market and find new revenue streams.
To do that, drug companies are turning to China and
India to test their drugs, two emerging markets that have burgeoning populations. What’s more, as the number of people who
can afford drugs grows in these two regions, drug companies setting up research and development and manufacturing operations
are poised to benefit from increased sales. After all, China alone is expected to be one of the world’s top health-care markets
in the coming years.
“Pharmaceutical companies are looking at more efficient and cheaper ways to undertake research,”
said Graham Lewis, vice president of global pharmaceutical strategy at health-care information and consulting company IMS
Health (RX). “Over the next five years, we forecast that 40% of global growth in pharmaceutical sales will come from emerging
markets.” According to Lewis, China is forecasted to account for 10% of the growth from 2007 to 2012 while India is projected
to account for 3%.

While countries like India
and China aren’t churning out the next Viagra as of yet, U.S. and Western European drug companies have been setting up shop
to test and potentially discover drugs.
In the U.S. and Western Europe, drug companies are having a tough time finding
patients for clinical trials mainly because many patients have gone through multiple trials, making it harder to determine
the effect of the drug, said Les Funtleyder, an analyst at Miller Tabak. In emerging markets like China and India, where drug
trials aren’t commonplace, the quality of the trials are enhanced, he said.
“What we are seeing is trials moving
somewhat more away from North America and Western Europe and more toward Central and Eastern Europe, Latin America and Asia
Pacific,” said Mark A. Goldberg, president of clinical research services and perceptive informatics at PAREXEL International
(PRXL), the clinical-trials outsourcing company. “Some countries' ability to recruit patients into trials tends to be faster.”
Goldberg noted that patients in emerging markets have more incentives to engage in clinical trials because it could mean better
health care. Physicians in emerging markets are also more inclined to conduct the trial to get the experience and build their
reputations, he said.
“We get very good data from all these places, which is completely critical,” said Goldberg.
“You can’t go to a region and benefit from a recruitment standpoint and not have the quality.”
Still, China and India
don’t have the infrastructure in place as of yet to become leading regions for drug testing. According to Goldberg, the number
of research-trained physicians able to run trials is still small compared to the Western world and the populations of the
countries.

“They are making a huge effort both in
India and China to train the medical community to perform research according to internationally accepted standards," said
Goldberg, noting it will increase over time. It is in pharmaceutical companies’ best interest to see this happen to drive
down the cost of R&D, which analysts said can account for 15% to 20% of annual sales.
“It's all just to improve
their margins,” said Funtleyder of Miller Tabak. “If you can discover something and produce it in a cheaper way it improves
margins.”
Pfizer (PFE), the big pharmaceutical company that’s been struggling recently as its drug pipeline
dries out is just one of the drug companies focusing on emerging markets.
In a recent press release, the company
said it plans to expand operations in China from 110 cities to more 650. Pfizer is targeting a 6% increase in market share
in Asian markets by 2012. Pfizer estimates China will be one of the world’s top-five health care markets by as soon as 2010.
Meanwhile AstraZeneca (AZN), the London drug company saw sales in China increase to $437 million in 2007, up from $85
million in 2001. AstraZeneca now has the top spot in China, according to IMS Health. In September of 2007, AstraZeneca, one
of the first to engage in large-scale clinical trials in China, inked a partnership with Peking University 3rd Hospital to
establish its first Clinical Pharmacology Unit in China. The unit will focus on Phase I clinical research.
Last year,
UK’s GlaxoSmithKline (GSX) opened a research-and-development center in Shanghai to work on discovering and developing new
drugs for disorders including multiple sclerosis, Parkinson’s disease and Alzheimer’s. Genzyme (GENZ), the Cambridge, Mass.
biotechnology company became the first U.S. biotech company to set up a R&D shop in China. In late April, it announced
it’s investing $90 million to construct a 2,000-square-foot R&D facility in Beijing.
“The Chinese demographic
structure is similar to that in North America and Western Europe. All the chronic diseases already exist or will exist in
the next ten to twenty years,” said Lewis of IMS Health. "Urbanization, western diets and (bad) habits will all contribute,
with a big surge in respiratory diseases if pollution is not curbed."
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