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What you need to know about the Defense Production Act – the 1950s law Biden invoked to try to end the baby formula shortage

Biden said the Defense Production Act would help end the shortage by directing suppliers of baby formula to prioritize delivery to formula manufacture…

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Biden invoked the Defense Production Act to help end the shortage of baby formula. AP Photo/David J. Phillip

U.S. President Joe Biden on May 18, 2022, announced he is invoking the Defense Production Act to help end the shortage of baby formula stressing out parents nationwide.

He said he will direct suppliers of baby formula ingredients to prioritize delivery to formula manufacturers and control their distribution as necessary.

You might well wonder what babies going without formula has to do with defense production, which calls to mind big warships and weapons systems. While using the Defense Production Act to force companies to make baby formula would certainly be a novel use of the act, it would hardly be the first time the postwar law has been used beyond its originally intended purpose to support national defense.

And in fact, the law is used a lot more frequently than you might think. But as a business professor who studies strategies to maximize efficient allocation of resources, I believe when presidents invoke the act it’s often more about political theater – showing the public you’re doing something – than addressing the problem in the most effective way.

Sweeping authority

The Defense Production Act was passed in 1950 and modeled on the War Powers acts of 1941 and 1942.

The War Powers acts gave the president sweeping authority to control domestic manufacturing. For example, it helped the U.S. increase production of warplanes from 2,500 a year to over 300,000 by the end of the war.

In 1950, America faced war in Korea, and Congress feared that growing postwar demand for consumer goods would crowd out defense production needed to face China and the Soviet Union, which both backed North Korea in the conflict. There were also concerns about inflation during that postwar period.

The Defense Production Act gave the president – who later delegated this authority to Cabinet officials like the secretary of defense – broad powers to force manufacturers to make goods and supply services to support the national defense, as well as to set wages and prices and even ration consumer goods.

“We cannot get all the military supplies we need now from expanded production alone,” President Harry Truman told Americans in a radio address after signing the act into law. “This expansion cannot take place fast enough. Therefore, to the extent necessary, workers and plants will have to stop making some civilian goods and begin turning out military equipment.”

The original law focused on “shaping U.S. military preparedness and capabilities,” which limited the scope of the president’s authority.

Routinely invoked

Although the Defense Production Act makes news only when the president dramatically invokes it, the government uses the law – or just the threat of using it – routinely to force private companies to prioritize government orders. The Department of Defense, for example, uses it to make an estimated 300,000 contracts with private companies a year.

Congress has to reauthorize the act every several years and has amended it frequently to expand or limit its scope. Over time, this has significantly broadened the definition of national defense to include supporting “domestic preparedness, response, and recovery from hazards, terrorist attacks, and other national emergencies.”

The Department of Homeland Security invoked it about 400 times in 2019, mostly to help prepare for and respond to hurricanes and other natural disasters, such as by providing resources to house and feed survivors. And Presidents Bill Clinton and George W. Bush, for example, both used it to divert electricity and natural gas to California during the 2000-2001 energy crisis.

The act has also been used extensively during the COVID-19 pandemic. President Donald Trump used it to prioritize the allocation of medical resources, prevent hoarding of personal protective equipment and require General Motors to build ventilators. He also ordered beef, pork and poultry processing facilities to stay open during the lockdowns to ensure a supply of protein for the American population.

Biden, for his part, has also already used the act a number of times, mainly to fight the pandemic. For example, in March 2021, he invoked it to speed up vaccine production by ensuring extra facilities were up to snuff, as well as to expedite the production of critical materials, equipment, machinery and supplies. In March 2022, he issued a directive to increase the supply of materials for large-capacity batteries that are used mainly in civilian electric vehicles.

Biden’s use of the Defense Production Act to address the baby formula problem illustrates a limitation of it. It can be used to set priorities for ingredients and manufacturing capacity, but it’s not a magic wand. A president can’t by decree make capacity that doesn’t exist instantly appear. And it isn’t clear how much it will do to quickly end the formula shortage – given the main problem is manufacturing issues that closed production at a key plant, not just a shortage of ingredients.

The act is widely used and has been widely useful, but it is no substitute for advance planning and preparedness.

Erik Gordon does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Economics

Energy Stocks Are Down, But Remain Top Sector Performer

High-flying energy shares have hit turbulence in recent weeks but remain, by far, the leading performer for US equity sectors so far in 2022, as of yesterday’s…

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High-flying energy shares have hit turbulence in recent weeks but remain, by far, the leading performer for US equity sectors so far in 2022, as of yesterday’s close (June 27), based on a set of ETFs. But with global growth slowing, and recession risk rising, analysts are debating if it’s time to cut and run.

The broad-based correction in stocks has weighed on energy shares lately. Energy Sector SPDR (XLE) has fallen sharply after reaching a record high on June 8. Despite the slide, XLE remains the best-performing sector by a wide margin year to date via a near-36% gain in 2022.

By contrast, the overall US stock market is still in the red via SPDR S&P 500 (SPY), which is down nearly 18% year to date. The worst-performing US sector: Consumer Discretionary Sector SPDR (XLY), which is in the hole by almost 29% this year.

The case for, and against, seeing energy’s recent weakness as a buying opportunity can be filtered through two competing narratives. The bullish view is that the Ukraine war continues to disrupt energy exports from Russia, a major source of oil and gas. As a result, pinched supply will continue to exert upward pressure on prices in a world that struggles to quickly find replacements for lost energy sources. The question is whether growing headwinds from inflation, rising interest rates and other factors will take a toll on global economic growth to the point the energy demand tumbles, driving prices down.

The market seems to be entertaining both possibilities at the moment and is still processing the odds that one or the other scenario prevails, or not. Meanwhile, energy bulls predict that the pullback in oil and gas prices is only a temporary run of weakness in an ongoing bull market for energy.

Goldman Sachs, in particular, remains bullish on energy and advises that the potential for more prices gains in crude oil and other products “is tremendously high right now,” according to Jeffrey Currie, the bank’s global head of commodities research. “The bottom line is the situation across the energy space is incredibly bullish right now. The pullback in prices we would view as a buying opportunity,” he says. “At the core of our bullish view of energy is the underinvestment thesis. And that applies more today than it did two weeks, three weeks ago, because we’ve just seen exodus of money from the space… investment continues to run from the space at a time it should be coming to the space.”

Meanwhile, a bit of historical perspective on momentum for all the sector ETFs listed above reminds that the trend direction remains bearish overall. But contrarians take note: the downside bias is close to the lowest levels since the pandemic first took a hefty bite out of market action back in March 2020 (see chart below). This may or may not be a long-term buying opportunity, but the odds for a bounce, however, temporary, look relatively strong at the moment.


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Commodities

Gold as an investment; a long-term perspective

To many investors, gold was a disappointment during the COVID-19 pandemic and the high-inflation period that followed. Instead of protecting a portfolio…

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To many investors, gold was a disappointment during the COVID-19 pandemic and the high-inflation period that followed. Instead of protecting a portfolio from inflation, the price of gold declined from its all-time high reached in 2020.

At the same time, inflation in the US and other advanced economies kept rising. Nowadays, inflation in the UK is expected to reach double-digit territory at the end of this year and runs at more than four decades high in the US.

Moreover, the news that a huge gold deposit was discovered in Uganda made many wonder what the point of investing in gold is if it isn’t so scarce. The new deposit has some 320,000 tonnes of extractable pure gold.

But time is on gold’s side. As an uncorrelated asset with the main financial markets, gold has its place in an investment portfolio.

Because of that, an analysis of the price of gold from a long-term perspective is useful as it helps filter the noise. After the bullish breakout in the early 2000s, the price of gold is in a bullish run, unlikely to end despite the recent underperformance.

Only bullish patterns followed the early 2000s bullish breakout

In the early 2000s, gold traded below $400/ounce. A bullish breakout led to several bullish patterns – including the current one, which may end up being bullish after all.

First, it was a pennant – a continuation pattern that was responsible for sending the gold price to $1000/ounce for the first time ever. What followed was an ascending triangle.

After the market had cleared the horizontal resistance given by the $1,000 level, it did not stop all the way to $1,900 in 2012. The move was reversed in the years to follow, but an inverse head and shoulders pattern propelled the price to a new all-time high in 2020, as uncertainty during the COVID-19 pandemic reigned on financial markets.

From that moment on, gold is in a consolidation area. Because it hesitated at horizontal resistance, one may argue that the price of gold forms an ascending triangle. The last time it did so, the market traveled more than $900, so bears might want to watch the current pattern closely.

Gold price’s resilience against the dollar has been impressive

Perhaps the best way to interpret the market is through the eyes of the US dollar. The gold price has been resilient against a rising US dollar, and the chart below shows it accurately.

From June 2020, the gold price did not move much, while the US dollar declined initially, only to recover the lost ground. Hence, gold’s price resilience in an environment of a rising US dollar adds strength to the yellow metal because a strong dollar limits the effects of inflation by offsetting the price of imports.

To sum up, gold is consolidating. A move to a new all-time high should trigger more strength, and a higher dollar might accompany it.

The post Gold as an investment; a long-term perspective appeared first on Invezz.

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Science

How prepared is biopharma for the cyber doomsday?

One of the largest cyberattacks in history happened on a Friday, Eric Perakslis distinctly remembers.
Perakslis, who was head of Takeda’s R&D Data…

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One of the largest cyberattacks in history happened on a Friday, Eric Perakslis distinctly remembers.

Perakslis, who was head of Takeda’s R&D Data Sciences Institute and visiting faculty at Harvard Medical School at the time, had spent that morning completing a review on cybersecurity for the British Medical Journal. Moments after he turned it in, he heard back from the editor: “Have you heard what’s going on right now?”

Eric Perakslis

He had not. While he was knee deep in the review, a ransomware later known as WannaCry ripped through the globe at breakneck speed, descending on a quarter million computers in more than 150 countries. One of the hardest hit groups was the United Kingdom’s National Health Service, which saw tens of thousands of devices — computers, MRI scanners, blood-storage refrigerators and other equipment — compromised, bringing many hospitals to a standstill for several days. By the time the NHS sorted through the rampage, government officials estimated the attack had cost them £92 million, or $120 million, both in direct costs and lost output — including more than 10,000 canceled appointments.

For Perakslis, looking back, the coincidental timing was almost eerie. But having first called on the healthcare industry to take cyber threats seriously in 2014, Perakslis had already warned others something like this could happen.

“I wasn’t surprised at all,” he told Endpoints News. “It’s not validation. It’s just like … I hate to be right.”

Five years and a pandemic later, as the whole world got a crash course on battling a highly contagious virus, the issue of defending oneself against malicious, insidious cyberthreats appears to have quietly taken root in biopharma. It came largely thanks to a confluence of factors, from the new reality of remote work to realizations about how dangerous it could be when, say, the rollout of a lifesaving vaccine is compromised.

Even as some warn industry is woefully unprepared for coordinated attacks, in many ways, drug developers are heeding the call to pay serious attention.

“I actually think that most of the pharmas are getting there,” said Perakslis, who’s since moved to the chief science and digital officer role at Duke Clinical Research Institute. “Do I think they’re meeting the threat? No. But I think they’re doing a good job trying to get there.”

Multiple biopharma companies declined to comment, citing the fear of becoming a target. But experts offered advice on how to navigate the ever-evolving threats of cybersecurity, which can ripple well into the future, in an industry where security is tough in a connected ecosystem of universities, research centers, labs, patient groups and hospitals.

“We need to focus on really defining and explaining what we need to protect,” said Kathryn Millett, a researcher at the UK-based NGO Biosecu.re.

War, crime and others

In 2017, Merck fell victim to NotPetya, an attack instigated by the Russian government that affected multiple big companies. But the aftermath of the attack continued to generate new headlines in 2022.

A court ruled earlier this year in the pharma giant’s favor, deciding that it should be awarded $1.4 billion in insurance payout for the damages it suffered when the malware wiped out years of research, disrupted sales operations and crippled Gardasil 9 production facilities, forcing the company to dip into the US national stockpile.

Bob Maley, chief security officer at the cyber risk monitoring service firm Black Kite, describes it as a “watershed moment.”

It was useful not just in illuminating what could happen when a drugmaker gets swept up in a large-scale cyberattack, but in helping define what people mean when they talk about cyberthreats in the biopharma space. For one, NotPetya illustrated the difference between cybercrime, where the ultimate goal often is to extort money, and cyberwar, which is always meant to be destructive.

“Those things do happen, but I think that for most business purposes, that kind of event — there’s not much we can do about that,” Maley said, referring to NotPetya. “If those state actors decided they’re going to do something in a cyber warfare, they’re going to do it.”

Other, more mundane kinds of attacks, though, can be just as devastating. The potential consequences vary widely, as do the points or modes of attacks, straddling the precarious line between the corporeal and the digital.

Jean Peccoud

The sheer range of possibilities for cyberattacks in life sciences led a group of researchers to propose the term “cyberbiosecurity” in 2017 “as a formal new enterprise which encompasses cybersecurity, cyber-physical security and biosecurity as applied to biological and biomedical-based systems.” Although that was credited by some for kicking off the conversation, Jean Peccoud, a synthetic biology researcher and professor at Colorado State University who co-authored that paper, noted it’s still a broad definition.

“This is a loosely defined field,” Peccoud said in an email to Endpoints.

Depending on who you are and what you are working on, the concerns could be vastly different. Peccoud himself, for instance, believes what’s unique to life science is the “dual representation of DNA sequence”: They exist as both molecules and as computer records, and translating or even transcending the two is increasingly convenient. That’s why for him, the scariest thing that could happen would be a biosecurity incident caused by an engineered organism, possibly with malicious DNA sequences designed in software, which could affect people’s health.

Some may be most worried about confidential data getting leaked; others may fear getting brought to a standstill when hackers lock down operations, demanding a ransom. For many, the nightmare scenario happens when attackers are lurking within company data, and no one knows about it — giving bad actors free reign to tamper with, to take an extreme example, the formula or quality control tests for a drug and thereby endangering patients.

“The state of play as it stands is that the problem of cyberbiosecurity itself is so large and nebulous that we cannot yet provide any clear messaging, guidance or solutions,” Millett of Biosecu.re said.

With bigger data…

While the threats of cyberattack are ubiquitous, security researchers, advocates and vendors have long warned that biopharma was a much greater target than other sectors.

“These industries offer an attractive target for cyberattacks because of their substantial investment in research and development, valuable intellectual property, connected IT and operational networks, and sensitive stores of data,” an MIT group wrote in 2018.

Emil Hewage

Emil Hewage is co-founder and CEO of BIOS Health, a Y Combinator-backed startup striving to personalize neural medicine through real time reading of patients’ neural code.

“In the discovery ecosystem we generate every week more data than that has been generated by public research efforts,” he said. “So we’re talking about many terabytes of brand new data sets per week.”

BIOS is but one player riding on a tidal wave of new discovery technologies generating data at unprecedented scale, which is often accompanied by the requisite analysis tools to interpret them. At the same time, research, development and manufacturing operations are all turning to more sophisticated technologies and data systems to measure and monitor performance on an ever-growing list of indicators.

Kelvin Lee

“The growing emphasis on cybersecurity is occurring at the same time that the industry is arguably changing to one driven by data,” said Kelvin Lee, director of the Manufacturing USA National Institute for Innovation in Manufacturing Biopharmaceuticals (NIIMBL), in an email.

Biopharma companies are also somewhat unique in how they are entangled in a complex ecosystem of universities, research centers, labs, patient groups, hospitals and more. That’s not to mention regulators, who impose an additional layer of compliance requirements.

“It’s not just a matter of number of systems, but also number of integrations between those systems,” said Adin Stein, head of engineering operations, IT and cybersecurity at cell therapy developer Lyell.

Then there are more ways for hackers to target companies. Businesses in general have been using more devices and connecting them, exponentially expanding the number of what security folks call “attack surfaces.”

“This is more data to lose or more subtle ways for that to be extracted and exhibited privily now,” Hewage said.

Perakslis and Peccoud also both point to a concept in the cyber space known as asymmetry: For any corporation, cybersecurity is a cost that executives try to minimize. Hackers, on the other hand, stand to gain immensely from an attack, and one person can theoretically take down an entire company (even though they usually work in groups these days).

The good thing about general problems is that general solutions exist, such as employee training and cyber hygiene.

At Black Kite, Maley said his team has gone through a long list of recommended cyber practices to try and predict which companies are most at risk of becoming victims of ransomware.

“What we found was that the bad actors, out of all those hundreds of things that could be exploited, they were only exploiting a very small subset,” he said. “What’s shocking to me is so few things that a company could do to reduce their likelihood of being a victim, for some reason, they just don’t do.”

They include patching the systems on old servers to get rid of vulnerabilities, configuring emails so that it’s harder for hackers to send phishing emails, mandating multi-factor authentication and asking employees not to use the same passwords for everything — lest their login information end up on the dark web and become easy keys for hackers in attacks dubbed credential stuffing.

“Basic, basic, basic kind of things,” Perakslis said. “It doesn’t protect you from the really hard stuff. But again, it’s like driving without a seat belt, you know. Seat belts are not going to keep you out of an accident. But it’s dumb if you get into an accident, you didn’t have one on.”

Building defense

When Kathryn Millett at Biosecu.re first conducted a pilot survey of biotech and cybersecurity leaders, all respondents agreed that cyberbiosecurity risks posed a “real and current threat.” In a follow-up survey that’s still ongoing, she’s heartened to find that the awareness has “trickled down to lab practitioner level.”

“I think there’s been enough sort of news out there, you know, and enough big stories that biotech is really taking notice, and recognizing that there’s a lot at stake and they don’t want to be part of that story,” Stein, the Lyell exec, observed.

Even if biopharma companies don’t go around boasting about it, plenty of signs point to a greater emphasis on cybersecurity. Big Pharma is increasingly bringing chief information officers into the executive suite when in the past they might have reported to the CFO. By Perakslis’ count, budgets are also increasing.

A report by cybersecurity solution provider Fortinet last year found that 98% of pharmaceutical companies surveyed “experienced at least one intrusion,” and around half of them saw between three and five intrusions. But importantly, business-critical data or intellectual property were among the least impacted.

Troy Ament

“With the uptick of these intrusions in general, companies have likely gotten better about protecting business-critical data, but that’s not to say cyberattacks targeting these pharmaceutical organizations are not serious, but it is possible that data is better segmented to prevent cascading impact if an intrusion happens,” said Troy Ament, Fortinet’s chief information security officer.

Lee, the NIIMBL director and University of Delaware professor, noted that while the leading pharma companies are sophisticated in the space, performance is also uneven.

“Smaller companies in the field that have just a few years of experience usually do not have strong cybersecurity protocols or the funding to invest in third-party analysis and compliance services,” Alex Zhavoronkov, co-CEO of the AI drug discovery company Insilico, wrote to Endpoints. “This sometimes worries me a lot.”

At companies that do allocate enough resources, cybersecurity often consists of three pillars: cutting-edge technology that cements every system update patching vulnerabilities; outside experts who provide intelligence and an assessment of risk levels; and a framework to integrate the handling of cyberattacks into the rest of the risk management system.

“One of the best cybersecurity strategies starts with assuming you’ve already been hacked because what happens when you’re hacked, you’re going to look for data that’s leaving,” Perakslis said, and he noted companies are getting better about using real time threat surveillance data to identify and jump on issues.

Alex Zhavoronkov

Biopharma could also learn from other industries, Maley said, learning from case studies such as the breach experienced by Colonial Pipeline, where a mix of exposed remote access ports and credential stuffing led to catastrophe.

For smaller players, Hewage noted, it’s best to start thinking about cybersecurity before they lay their hands on sensitive data. Alternatively, Zhavoronkov noted Insilico decided to lower the risk by minimizing the amount of patient data its platform relies on — while carefully following compliance protocols demanded by Big Pharma partners and engaging providers to perform stress tests.

“I think as you think about particularly emerging biotech, one of the key lessons that I’ve picked up on through the community is the idea of security by design,” Stein said. “It is easier to put a security program in place and develop a culture of security than it is to go back and retrofit.”

Still, no defense is permanent.

“While the industry has certainly taken notice, being on alert never ends,” Ament said.

Culture of secrecy

After a cyberattack, biopharma companies are reluctant to share what happened with other drugmakers, losing what could be teaching moments. Maley said what to disclose has been an issue even going back to a 2006 cybersecurity conference that he attended.

“We’re still talking about it 16 years later,” he said.

To this day, Merck has kept public statements about the NotPetya attack to a minimum. And while others, from Dr. Reddy’s to Roche to Bayer to more recently Novartis, have reported cyber intrusions, they often don’t offer any details beyond whether any sensitive data were compromised.

There are legitimate reasons for staying mum, Perakslis said: “One of the important reasons is that you would never give an adversary your playbook.”

There are also few laws requiring disclosure, while board members do have a fiduciary responsibility to shareholders — which often means to limit bad press.

“I think most companies when they experience these things, one of the first questions that management asks is, well, who do we have to tell? Not who should we tell,” Maley said.

But conversations do happen, Stein said, where specifics are kept confidential and lessons are shared, whether through speaking engagements at conferences, consulting vendors or contributing to the creation of industry standards.

“I wouldn’t assume that if you’re not hearing from a particular organization, they’re not contributing very heavily to quite complex discourse,” said BIOS CEO Hewage. “And in some senses, it’s best to trust really heavily peer reviewed and vetted, industry wide conversation.”

Government agencies can sometimes play that middleman role. The US Department of Homeland Security, for instance, has established Information Sharing and Analysis Centers for early information sharing; the Department of Health and Human Services set up the Health Sector Cybersecurity Coordination Center to do something similar and alert stakeholders to threats; and the UK is also reviewing its biosecurity strategy.

That said, it is nearly impossible to truly tell how prepared a certain company is against cyberattacks — and even with options for sharing, companies tend to be selective about what they say. As a pharma insider told Endpoints, “There’s no prize for naiveté.”

Finding a balance

Even those who are most steeped in cyberbiosecurity advocacy tend to acknowledge that cybersecurity cannot, and should not, be the sole focus of biopharma companies. Their stated mission, after all, is to develop new vaccines and treatments for diseases.

With all the other projects, plans and needs vying for attention, Perakslis said it’s all a matter of prioritization and resource allocation — thinking through how much money to spend on things that are likely but low impact, versus those that are unlikely but high impact.

Understanding the risks and impact thoroughly, then, becomes key.

Finding reference in other areas, Peccoud noted that the aviation industry has an incident reporting system that’s essential to develop its safety culture. Voluntary reporting is shielded from prosecution, which, along with the National Transportation Safety Board, provides material that can be discussed in training or to develop regulation.

“Without transparency the bad guys will always have the edge,” he said.

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