Shazeeye's Blog Thoughts on User Experience, Technology and Business


Macroeconomics 101: What drives the economy?

Macroeconomics deals with the performance, structure, behavior, and decision-making of the whole economy. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as  unemployment, inflation, investment, and international trade (Source: Wikipedia).

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, usually a year. It is a measure of how well an economy is doing. For every 2% increase in GDP unemployment reduces by 1% (Okun's Law). 

GDP =consumer spending + investment ((spending on goods and services by businesses) + government spending (federal, state and local) +  net exports (exports - imports)

GDP = C + G + I + NX

Consumer spending contributes 70% to a country's GDP, while investment contributes 20% and government spending contributes 5%.

Let's look at why the stimulus failed to create jobs. The stimulus (government spending) contributes to the economy at just 5%. Consumer spending which contributes to 70% of the GDP has not increased with time because average incomes have not increased in the last 10 years in the US. Consumers prefer buying cheaper options that are imported into the US which gives the profits to the country they get imported from. With so much money (government spending) out there interest rates drop thus other countries are less likely to invest in the US. Exports are cheaper and imports more expensive which is why net exports (exports-imports) is in the negative range. Industries are fearful of the recession and are holding on to their money until better times arrive (also as consumer spending has not increased so they fear no one will buy their products). Nothing is being done to fix the trade and budget deficits. In fact spending is increasing the budget deficit and to balance this current account we need to increase our capital account so we increasingly rely on imports which ultimately profits the country from where the imports came from.

Thus consumer spending is not increasing and investment may actually decrease while net exports are in the negative range so even though government spending has increased it hasn’t increased the GDP and thus the unemployment has not increased.

How do we improve the economy?

Reduce the trade and budget deficit by saving wherever possible. Provide incentives for industries to spend locally (as opposed to outsourcing) while keeping costs low. Increase consumer confidence.

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How do drugs get their labels?

On March 1st I went for a talk on Target Product Profiles at UCSF. Patrick Scannon, Xoma's Founder and CSO spoke on how drug discoveries can be made into commercial realities with the help of a Target Product Profile (TPP).  A TPP is the first step towards creating a drug label. A TPP is defined as a communication tool to help people in academics (discoverers of drugs in labs) to communicate the value of a drug to investors (people with $ but not convinced). This takes the drug from discovery through development to approval/market entry. It also helps keep various departments/functions such as regulatory, manufacturing, sales, marketing, etc. on the same page.

As drug discovery takes many years to commercialize (about 12 yrs) it is important to have clear goals (TPP) and to start with the end (FDA approval) in mind and work backwards. The TPP defines who the drug is for, what disease it cures, how large is the market, how is it administered and more details as seen in the image. Defining the unknowns upfront helps communicate the goals better to the FDA (governing body that ultimately approves if a drug can be commercialized). The TPP helps in thinking of launch strategies too. For example, some drug companies first launch in an orphan market (diseases affecting fewer than 200,000 people) and then larger markets as its faster to get approval in orphan markets and grants are available to support you in this process. Some companies also choose to launch in international markets before local markets as approval is faster for certain diseases.

Often changes in the IP landscape or manufacturing processes or technical difficulties result in changes to the TPP and CEOs are forced to make a difficult decision  to move ahead with the changes or drop the product. If the CEO agrees to go ahead she/he needs to update the TPP and keep all in the loop. The TPP can be used to increase the value of the company by finding ways to create additional IP, communicating improved benefits and decreased adverse events. CEOs can also use the TPP to forecast different scenarios of the drug. For example, a target scenario, a minimal scenario and an optimistic scenario where the CEO predicts the characteristic of the drug and thus his strategies under these three scenarios.

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