An Unfortunately Familiar Post-Pandemic Story
The latest shortage... The U.S. doesn't have enough antibiotics... An unfortunately familiar post-pandemic story... Relying on China... Cronyism killed us again... The long-term opportunity is obvious... A record-setting win...
We're still 'short'...
First, more than two years ago, it was the toilet paper... then the semiconductors... and the lumber... and then, this year, the baby formula...
Now, as winter settles in across America and children are getting sick all over the place, the U.S. is suddenly short of commonly used antibiotics.
A scarcity of liquid amoxicillin, in particular – that pink fruit-flavored stuff that's a first-line treatment for pediatric illnesses like strep throat and ear infections – has many parents across the country frightened.
The reason for the shortage? Well, it's a familiar post-pandemic story...
Increased demand and limited supply...
I (Corey McLaughlin) can't say I'm surprised, but I am disappointed...
It's not officially winter yet, but it's cold in many parts of the country. Kids are getting sick, like they always have. Of particular note is the respiratory virus RSV that seems to be more prominent than usual, maybe because kids built up less immunity in the past few years while wearing masks and distancing.
Still, I'm disheartened that U.S. pharmaceutical companies and our giant health care system – which makes up 20% of the economy – can't supply American children with the simple antibiotics that have been around for a century. Doctors and pharmacists have been talking about antibiotic shortages for about a month now.
We know that some folks disagree with how we use antibiotics in modern medicine... But the point today is, according to the U.S. Food and Drug Administration, the country has a shortage of a basic life-saving medicine.
It's not because American companies and scientists don't know how to make the stuff...
The problem echoes a familiar theme... The critical ingredients for the products (or the products themselves) come from somewhere else, where they've typically been cheaper to source or make over the years.
The largest producer of these cheap, effective medicines – which hundreds of millions of Americans, and billions around the world, rely on to stay healthy – probably doesn't come as a surprise...
It's China...
But what might surprise you is how quickly the U.S. became dependent on the world's second-largest economy for this medicine. We take it for granted as always being there... like microchips... or wood... or toilet paper.
As recently as 2008, every U.S.-administered dose of amoxicillin was produced in the U.S. But by 2019, the U.S. Commerce Department reported that 80% of the supply of U.S. antibiotics came from China.
Well, then. It doesn't take a lot of imagination to see how a few tanker ships being delayed at port, or any kind of supply-chain breakdown, can end up resulting in a cascade of effects.
Of course, amoxicillin isn't the most profitable drug...
A seven-day course usually sells for less than $5, meaning there's not a ton of incentive for companies to invest in its production. That makes business sense, sure. But we have seen the compounding costs of the fragile global supply chain for the past two-plus years...
Things can be made cheaper in the short run, at least. But any time supply falls out of America's hands, any number of reasons – like China's "zero COVID" policy... or war... or anything else – can make them all more expensive in the longer term.
The cost can be in higher prices, or the emotional wreck for scared parents and sick kids... Or if it's supplies of something else like oil or natural gas, we could face cold homes as we get into the heart of winter. I'm no isolationist, but it makes too much sense to take care of home first.
Some people actually tried a few years ago...
I asked Stansberry Venture Technology editor Dave Lashmet, one of our resident medical experts, for his take on this story today. He reminded me that in 2020, the old filmmaking company Kodak "got a sweetheart deal to be the manufacturer" of amoxicillin.
You might remember this story...
Insiders at Kodak traded ahead of the news breaking that it was getting a $765 million government loan to start making pharmaceutical products... and the story became one of insider trading instead of the iconic American brand reinventing itself. As Dave said...
In the ensuing blowback, Kodak (with no drug manufacturing experience) then lost the government contract... Then something about COVID took center stage...
It seemed an outlandish change at the time – a former film company making drugs – but looking back, it might have been good if it happened. Our colleague Dan Ferris wrote about the whole episode as it was unfolding.
In the August 7, 2020 Digest, Dan said he wished those involved "swift and terrible justice." And he lamented the victims of the events, or "The Forgotten Man," a label coined in an 1800s essay by William Graham Sumner...
In the cronyistic Kodak affair, the Forgotten Man is both the taxpayer and the long-suffering Kodak shareholder. Both groups work, vote, sometimes pray and above all, they always pay.
What ever shall I tell them?
I don't think Dan had an amoxicillin shortage two years later on his mind, and I'm not sure I ever wanted Kodak making any drugs I might end up taking. But in any case, the cronyism and greed of corporate insiders – who made and accepted sloppy options grants and got caught – had unintended consequences once again.
The good news is that some help is on the way...
Almost exactly one year ago, Jackson Healthcare – a privately held staffing and tech company in the industry – announced plans to reopen the one and only facility in the nation licensed to make amoxicillin. The one and only.
The Tennessee-based facility, run by USAntibiotics, went bankrupt in 2020 in the throes of the pandemic, even as some employees – knowing the place's importance – worked without pay to keep the plant operational.
In April 2021, Jackson Healthcare acquired USAntibiotics, putting the company under American ownership for the first time in its 43-year history. Last November, it announced plans to reopen the facility, saying...
When it reaches full production capacity in 2022, it will be able to produce enough Amoxicillin products to meet 100 percent of the nation's demand for these essential medications.
That sounds good. One facility to meet 100% of the demand. And Jackson Healthcare said it plans to eventually stockpile five years' worth of demand. This doesn't seem to be the reality at the moment just yet, though.
Dealing with worried parents and sick children, doctors and pharmacists in a bind right now are suggesting kids take a general antibiotic as an alternative... the path of least resistance, which ironically could lead to more resistance to antibiotics in the future.
The opportunity...
The broader point is, for all the problems, these sorts of shortages represent an opportunity to "re-shore" manufacturing of all kinds of goods in the U.S. This would mean more supply and new jobs tied to tangible value... and to top it all off, potentially less inflation.
The Federal Reserve can do whatever it wants to crush demand in the economy, but it's not going to wipe the need for drugs to treat infections off the planet... Health care products will be needed so long as people want to stay alive.
Admittedly, though, price isn't the big issue with generic drugs like amoxicillin. But for more expensive items, the influence of supply on prices compounds at a greater pace every time there is a delay or shortage. Each case is a missed opportunity to make something in the U.S.
If high inflation sticks around (which is a good possibility) – and we continue to see global supply-chain breakdowns and major geopolitical conflicts – maybe more and more people will realize the incentive for making what we can in the U.S., particularly when it comes to essentials.
It might take a while, but some of this is happening already. Major investments are finally being made in semiconductor-chip manufacturing in the U.S., but there is plenty more room for innovation and production within U.S. borders.
Why not pursue it?
To close things out, one related note...
One resource that few can live without – unless you're off in the woods and can survive with fire – is oil. In one way or another, oil prices determine what we pay for everything... from oil directly or any goods that are transported by ship, plane, or truck.
It's all part of the energy-supply picture...
We've talked to you before about the bullish case for oil and gas prices in the years ahead.
A lot of the world is obsessing over a green-energy transition. But in the meantime, people are still burning fossil fuels, and there has been underinvestment in the industry for years. This creates a supply-and-demand imbalance and pushes prices higher.
This is precisely the scenario that has played out over the past two years, with the war in Ukraine adding even more pressure to already tight oil supplies worldwide. Along the way, energy prices have soared, and many oil and gas businesses have enjoyed the boom.
A record-setting win...
One such company was recommended by Stansberry Research senior analyst Alan Gula in our flagship Stansberry's Investment Advisory... way back in November 2020 during the pandemic-induced energy bust. As Alan wrote recently in a recent update to subscribers...
We knew that a boom would unfold sooner or later. As it turns out, the boom was right around the corner.
Two years later, shares of this oil-royalty stock, Texas Pacific Land (TPL), were up more than 400% since Alan's recommendation. And recently, on November 10, he sent a rare inter-issue alert for subscribers to take profits. As Alan explained...
Mass layoffs have started in the tech sector, signaling that the economic weakness is accelerating. These developments could put pressure on the price of crude oil.
Over the longer run, Alan's team recommends other energy stocks with cheaper valuations than TPL, and he says they will benefit when oil prices inevitably move higher again. But with oil prices down lately, taking profits after a monster energy-related gain is prudent.
Kudos to Alan and the team on this winner. They notched a gain of around 420%, good for the largest booked gain in the history of our flagship publication.
To get more insight from our Investment Advisory team, and potentially hop on board their next big winner, click here for more information on how to get started.
Today, we are offering a year of access to our flagship publication for only $49 – that's 75% off the regular price.
Each month you'll receive a brand-new issue with our team's best ideas... and with a subscription, you'll also gain access to much more, like more than 100 members-only special reports and bestselling books that we've written over the past 20 years.
Even better, you'll also be protected by a 30-day full money-back guarantee. If you decide the subscription isn't for you, simply contact our member services team and we will refund you every penny paid.
And you can still keep everything you received – the special reports, books, and stock recommendations our team has made. If you're interested in learning more about our work, it's a no-brainer. Learn more here and take advantage of this rare offer today.
10 Sectors Poised to Break Out
Could this be the start of the end of the bear market? On this episode of Making Money With Matt McCall, Matt dives into the recent market action and breaks down more than 10 sectors that he believes are poised for breakouts...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
New 52-week highs (as of 11/18/22): Biogen (BIIB), Covenant Logistics (CVLG), Comfort Systems USA (FIX), Ryder System (R), Rollins (ROL), and Valmont Industries (VMI).
In today's mailbag, feedback on inflation, inflation, and inflation... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"While I really enjoy the daily Digests, I am growing weary of the unending 'we are almost to the end of rate hikes and markets will surge' message. While I too wish this to be the case, we just don't really know. With at least three different inflation measurements being tossed around, cherry-picking the one that is behaving the way you want is just not right. And by the way what does 'peak' inflation really mean.
"Until prices stabilize across the board, and we don't see consistently rising prices, inflation is still here. And rates will continue to increase." – Paid-up subscriber John J.
"I'm not very knowledgeable but I do know from my former profession that as a recession deepens the first domino to fall is housing and the second one is automobiles for the average person. Likewise, the reverse is true as we climb out of a recession. Those are my indicators that work for me. Individuals retreat from long term debt in that order.
"Also, EVERYTHING we purchase, EVERYTHING, has moved by a truck at least once before we purchase it... most items are transported by trucks many, many times before arriving at their final destination for sale or final use point. We MUST get the cost of their transport DOWN if we are to have any chance of lessening the impact of this recession (non-recession?)." – Paid-up subscriber Philip M.
"Your analysis in important, but I believe that even if the Fed raises rates again, even by a lot, I believe that this already built in to the market, and that the next bull market has already begun, though it will not be without stumbles and surprises. The thing we must watch more than inflation is cashflow and profitability, and that's what we would like you to comment on when looking at inflation." – Paid-up subscriber Tim W.
All the best,
Corey McLaughlin
Baltimore, Maryland
November 21, 2022