America’s Shadow Pharmacies

In October 2003, the Senate Committee on Health, Education, Labor, and Pensions assembled for hearings on compounding pharmacies. These state-licensed retail businesses mix and sell medications, but without the federal safety approval required for mass-produced drugs. Then-Senator Christopher Bond (R-Mo.) convened the hearing by warning of “a significant number of very real problems caused by compounded drugs.” The committee, he said, had “received reports of non-sterile eye drops causing blindness; spinal injections contaminated with bacteria and/or fungus, resulting in hospitalizations and, in some cases, death; and children poisoned as a result of pharmacy compounding errors.” In one case, a pharmacist in Bond’s home state had been convicted in 2002 and sent to prison for diluting more than 4,000 doses of chemotherapy drugs.

Expert witnesses testified that to address such dangers, Congress should give the Food and Drug Administration authority over compounders. Not everyone agreed. Senator Pat Roberts (R-Kan.) commented from the dais that he’d met privately with a physician named Steven Hotze, who was “eager to provide the committee with his input on this important topic.” That input bore the stamp of Hotze’s free-market philosophy. “Regulatory agencies,” he asserted in written testimony, “cannot prevent an individual from committing a criminal act. However, regulatory agencies can, and often do, adversely affect the efficient, safe, and productive practice of business.”

The impresario of a nationally prominent alternative-medicine practice in Houston, Hotze has helped popularize what he calls the Wellness Revolution and what others call the anti-aging movement. With roots in the timeless quest for rejuvenation, the disparate products and treatments associated with anti-aging became a booming business in the mid-1990s. Defined expansively to include everything from dietary supplements such as resveratrol to hormone-replacement capsules and creams, the anti-aging industry generates annual sales of $ 80 billion, according to the research firm Global Industry Analysts.
Photograph by Daniel SheaPharmacist Sarah Sellers quit compounding over inadequate sterilization and other practices. The influence of anti-aging compounders, she says, “has been surprising and not well-understood”

Hotze promotes an eight-step regime emphasizing “bio-identical” estrogen, testosterone, and other plant-derived hormones, which are made and sold at the Hotze Pharmacy, an arm of the 90-employee Hotze Health & Wellness Center, which resembles not a Walgreens (WAG) but a high-end spa in a suburban Houston neighborhood. Suzanne Somers, the former Three’s Company sitcom actress, Thigh Master marketer, and best-selling health-tips author, sings Hotze’s praises. So do patients who appear in his advertising videos or on his four-day-a-week Houston radio show. A conservative activist, Hotze has gone to court and coordinated online campaigns to thwart federal oversight of compounding pharmacies, many of which resemble conventional drug-dispensing stores. He and other anti-aging advocates are a vital subset of the compounding industry. Indeed, compounders continue to operate in a regulatory gray zone, in part because of Hotze and his anti-aging colleagues, according to Sarah Sellers, a pharmacist who has advised the FDA. “Their influence,” she says, “has been surprising and not well-understood.”

Congress didn’t act on compounding after the Senate hearings nine years ago. Legislation surfaced in 2007, but again, it didn’t get far. Now, in the wake of a meningitis outbreak linked to a compound pharmacy in Framingham, Mass., bills are being introduced once more. Eclipsed temporarily by the lethal hurricane in the Northeast and the presidential election, the New England Compounding Center (NECC) scandal has forced the issue. In October, NECC recalled more than 17,000 vials of a back-pain steroid after tainted doses were linked to cases of fungal meningitis. So far, 438 people nationwide have suffered infections, leading in many cases to strokes and to swelling of the membranes covering the brain or spinal column; 32 patients have died.

Neither Hotze nor other anti-aging practitioners are implicated in the meningitis outbreak. Many mainstream physicians and researchers question the efficacy and potential side effects of certain anti-aging treatments, but that’s a separate issue from whether compounding needs better oversight. This is the story of the little-noticed role Hotze and other wellness entrepreneurs play in the compounding industry—and, in particular, how they’ve helped compounders avoid more stringent federal regulation.

Hotze, 62, holds proudly defiant views on many issues, none stronger than his hostility to what he sees as government overreaching. On compounding, he says: “They want to regulate us to death. That’s what we’ve fought against.”

A 1976 graduate of the University of Texas Medical School, Hotze began his career conventionally, as an emergency room physician and then general practitioner. Mainstream medicine, though, left him frustrated. Many patients seemed not to respond to FDA-approved drugs he prescribed. In 1988 he had an awakening. An elderly woman told him: “Ever since I threw away all the medications you gave me, I feel like a million dollars.” He shared this revelation with his wife, Janie. They “knelt before God,” according to his center’s website, “and asked Him to give them a way that they could help their patients get well, and at the same time build a practice that could support their eight children.”Photograph by Daniel SheaThe Wellness Guru: “They want to regulate us to death. That’s what we’ve fought against”

Their prayers were answered. Hotze became a leading evangelist of alternative treatment aimed at correcting hormonal imbalances rather than “masking” symptoms with what he disparages as “anti drugs”—antibiotics, antihistamines, antidepressants, and so forth. “We are able to help you regain and prolong your quality of life by utilizing bio-identical hormones, vitamins, and minerals, and an optimal eating regime, all of which restore hormones to optimal levels, strengthen the immune system, and increase energy levels,” he promises in promotional literature. “Get back your life” is the slogan at the Hotze center. The nattily attired proprietor refers to his patients as “guests,” adding: “I’m in the hospitality business, and in that context, we provide health care.”

By the early 2000s, enterprising pharmacists all across the country were benefiting from the spreading popularity of anti-aging therapies. A central tenet of this movement is that patients ought to seek natural remedies whenever possible and avoid at all costs what Hotze calls “counterfeit” hormones manufactured under patent by large FDA-regulated corporations. He points to mainstream research showing that these drugs increase the risk of breast cancer and heart attack. He advocates instead unpatented mixtures made by compounding pharmacies—like his. His bio-identicals are formulated from yams and, he says, “fit perfectly into the hormone receptors found in the cells of the body.”

Although compounding may conjure images of cloaked apothecaries hunched over mortar and pestle, the practice was widespread until big manufacturers systematized drug production 60 to 70 years ago. Even after the FDA began regulating the safety of new drugs in 1938, state-chartered pharmacies continued to provide specialty medications that weren’t otherwise commercially available: a syrup with a flavor added to appeal to a sick child, a pill reformulated to remove an allergen, a customized intravenous solution for a cancer sufferer. Viewing compounders as a disappearing breed operating on a small scale, the FDA didn’t require that their one-off mixtures receive federal approval as new drugs.

Meanwhile, the advent of compounded wellness remedies proved a godsend for struggling mom-and-pop pharmacies competing against discount retailers, in part because most chains didn’t bother with hormones, which often aren’t covered by health insurance. In her 2010 book Selling the Fountain of Youth, author and former Businessweek senior writer Arlene Weintraub recounts how pharmacists “could go into a back room, mix up hormones according to a doctor’s instructions, and sell them straight to patients.” By 2003 more than 30 million prescriptions for compounded drugs were being written every year. Today about 3 percent of all prescriptions call for compounded drugs, according to the International Academy of Compounding Pharmacists (IACP), a trade group.

Not all pharmacists were gung-ho about the revival of compounding, which was also spurred by compounders’ ability to provide versions of drugs that large companies ceased to manufacture. As a rookie pharmacist in Florida in the early 1990s, Sellers, the former FDA adviser, observed what she considered inadequate sterilization of compounded spinal injections and a lack of potency testing. She suggested switching exclusively to patented, FDA-approved products. Her employer refused, telling her that doing so would reduce profits. Sellers quit and began doing broader research on sterile compounding. In 1998 the FDA invited her to serve on its Advisory Committee on Pharmacy Compounding. The panel was charged with helping to implement a federal law enacted in 1997 to clarify the rules that applied to compounders.

The FDA had grown concerned that some compounding pharmacies were going beyond the one-patient, one-prescription model to become, essentially, drug manufacturers. The agency took this anxiety to Congress, which, as part of the 1997 FDA Modernization Act, said compounding could remain exempt from federal safety review, but only in its traditional prescription-by-prescription form. If they produced drugs in bulk and not to fill individual patient scripts, pharmacists would be considered manufacturers. In a provision that would prove fateful, Congress sought to deter mass production by prohibiting pharmacists from advertising compounded drugs.

Some doctors and pharmacists viewed the federal action as an intrusion. “We’re regulated as it is,” Hotze says. “We have state regulation that is thorough and sufficient.” David Miller concurs. The chief executive of the IACP, to whose political action committee Hotze contributes, Miller notes that “doctors, nurses, and hospitals are all state-regulated. The FDA’s repeated efforts to oversee us—that is just an attempt to do something without jurisdictional authority. We have made our voice heard in opposition.”

That they did. In 1998, before the Modernization Act had even been enforced, pharmacists in six states (although not Hotze) filed suit in federal court in Nevada claiming their constitutional rights were endangered. When the litigation reached the Supreme Court four years later, the IACP filed a brief pointing out that compounding enjoyed a storied tradition in America: John Winthrop (1606-76), son of the first governor of Massachusetts, was one of the country’s first pharmacists in an era when compounding was the entire game. The ban on ads for compounded drugs, industry lawyers argued, infringed pharmacists’ First Amendment right to free speech. The argument worked. By a 5-4 vote, the justices ruled that preventing large-scale compounding was an insufficient rationale to justify compromising “commercial speech.”

In the years that followed, Hotze and another group of pharmacists stayed on the offensive. In 2004, nine months after he personally lobbied the Senate committee, Hotze was back on Capitol Hill, telling a House subcommittee not to trust federal drug regulators. “The drugs that the FDA approves kill Americans every day,” he said. Later that year he helped organize a group of compounding pharmacists to sue the FDA again, this time in Texas. The suit aimed to settle once and for all whether the agency had authority over the drug mixers. Instead, it added to the muddle.

A federal trial judge initially ruled for the pharmacists, but in 2008 a three-judge appellate panel said the Supreme Court’s decision six years earlier should be read narrowly to allow compounding with a modicum of FDA oversight. The upshot was that the federal agency claimed it still had some authority while compounders insisted it had almost none.

Simultaneously, Hotze spearheaded a lobbying campaign to block a bill introduced in 2007 by the late Senator Edward Kennedy of Massachusetts that would have given the FDA the unmistakable clout to inspect and regulate compounding pharmacists. A Hotze-sponsored online group called Project: FANS (Freedom for Access to Natural Solutions) organized telephone and e-mail campaigns to urge members of Congress to oppose the Kennedy bill. FANS warned that “the bureaucrats at the FDA would determine which pharmaceutical company drug is best for you.”

Compounders know how to mobilize. During the 2007 Compounders on Capitol Hill campaign, the IACP dispatched 404 members to pay in-person visits to 285 congressional offices. Since 2000 the IACP has spent $ 1.1 million on lobbying in Washington, according to the nonpartisan Center for Responsive Politics. That money has purchased the services of such engineers of influence as Parry, Romani, DeConcini & Symms and Arnold & Porter. Never a top priority for either party, the Kennedy bill died. The FDA continued to write the occasional warning letter about compounders whose conduct resembled that of an interstate manufacturer; lacking clear authority, however, the agency mostly stayed on the sidelines.

Hotze’s personal brand is familiar to many Houstonians whether or not they partake of the Wellness Revolution. On one recent morning he arrived at the health center after an appearance on Great Day Houston on the local CBS affiliate, during which he puckishly recommended that middle-aged men seek testosterone replacement therapy to “put a tiger back in your tank.” Clad in a camera-friendly cerulean blazer and paisley pocket square, the doctor hustled to his office, where a film crew from out of town was set to shoot a video for his website. “It’s all about marketing,” Hotze says. “That’s where the leads come from.”Still life art direction by Morgan Brill

Over the past 15 years, Hotze estimates, the 20,000-square-foot center has served 25,000 guests. Hotze says 20 percent of his patients come from out of state, some because they’ve seen his ads in airline magazines. His elegantly appointed second-floor waiting area resembles a luxury hotel lounge. The mostly female staff of nurses, medical assistants, and telemarketers with headsets wear identical, trimly cut black pantsuits. In the spotless compounding lab, technicians in protective hats, tunics, and booties weigh and mix the powders and creams purchased by guests. The Hotze Pharmacy handles about 450 prescriptions a day. As many insurance companies won’t cover the remedies Hotze prescribes, customers pay out of their own pockets.

The doctor’s interests extend beyond medicine. According to the Houston Chronicle, Hotze has been “a powerhouse” in local Republican primaries. Opposing gay causes and candidates has been one of his main missions, although he hasn’t always been as successful on that score as he has in thwarting federal pharmacy regulation. In a 1990 video titled “Restoring America: How You Can Impact Civil Government,” Hotze told viewers: “There is no neutrality. Civil government will either reflect biblical Christianity, or it will reflect anti-Christian positions. You can make the difference.”

Hotze merged several of his concerns into a campaign in 2010 against President Barack Obama’s health overhaul bill. The FANS website urged citizens to lobby members of Congress to kill the legislation. “Do we want to kiss goodbye to medical innovation, like possible cures for cancer and other life-saving medical treatments?” FANS asked. “Keep the government out of medical care and let the free market work its magic.”

The NECC scandal—which, to repeat, did not involve Hotze or anti-aging therapies—has restarted the debate about whether state-level regulation is sufficient to ensure the safety of compounded drugs, or if it’s time to reconsider the type of oversight Hotze and the IACP have frustrated so far. (“What went on up there in Massachusetts, I can’t say,” Hotze notes. “I don’t know the facts.”)

In an Oct. 29 survey of pharmacy board records from all 50 states, the office of Representative Edward Markey (D-Mass.) concluded that the agencies “do not, as a general rule, appear to undertake enforcement actions that relate to the safety or scope of compounding pharmacy practices.” Rather, the states “focus more on compliance with traditional pharmacy licensing, controlled substances, and other requirements.” Massachusetts health officials have fired the director of the state’s pharmacy board for failing to investigate a complaint about NECC. Markey, in whose district NECC operated until October, has introduced a bill that would authorize the FDA to inspect and oversee compounding pharmacies.
In addition to the recent meningitis outbreak, Markey’s staff has found records documenting 23 deaths and at least 86 serious illnesses or injuries since 2001 associated with improper compounding practices. “These totals should be considered to be conservative,” the staff concluded, “since in many cases the reviewed documents noted the existence of adverse events but did not specify the type or quantity.”

Hotze and IACP note the FDA had a chance to crack down on NECC and missed it. Because of hints that the business was compounding on a large scale, the federal agency inspected NECC and in 2006 issued a warning letter. “The FDA suspected this was a drug manufacturer, not a legitimate compounding pharmacy, and they had jurisdiction to close down a drug manufacturer but did not,” Miller of the IACP says. “It seems facile,” he adds, to propose giving the FDA more power when the agency already has the ability to shut rogue drug factories. “It’s a frustration for our profession,” Miller says, “that the FDA seems intent on insinuating itself into the day-to-day practice of pharmacy.”

The FDA wants Congress to expand and clarify its authority. In anticipation of a new round of Capitol hearings on Nov. 14 and 15, the agency issued a statement asking lawmakers to strengthen federal oversight. FDA Commissioner Margaret Hamburg was scheduled to testify before separate House and Senate committees. While lawmakers debate the future of compounding, Hotze himself was back in Washington to monitor the hearings and meet privately with several members of Congress. “The last thing we need,” he says, referring to the NECC case, “is for Washington to overreact to one bad actor.”

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Beating tax cheats key to Italy’s recovery plan

ROME (AP) — Good plumbers may be worth their weight in gold, but when one was spotted zipping around in a bright red Ferrari, Italian tax police were fast on his trail.

Stamping out entrenched tax evasion is crucial to Premier Mario Monti‘s quest to keep Italy from succumbing to the European debt crisis, and it is critical to fellow eurozone members in more dire straits, such as Greece and Spain — which are also notorious for making cheating the taxman a way of life.

Indeed, Greece’s international rescue creditors have been pressing Greece for two years to reform its ailing tax system, citing poor collection as a key factor keeping the country mired in crisis. In Spain, where tax fraud is rampant, as much as €90 billion ($ 150 billion) is lost each year to tax fraud — the equivalent of the country’s national debt, according to Spain’s main tax inspectors union.

To succeed in Italy, authorities will have to catch the legions of self-employed and small business owners who brazenly lie about their earnings, like the plumber in the eastern town of Pescara, who socked away undeclared income in 30 bank accounts, or a successful pastry shop owner in Calabria, who on his tax return claimed he was earning next to crumbs.

And those are the less sophisticated schemers.

Tax police officials say that wealthy Italians, their companies and foreigners who make their money in Italy are increasingly trying to avoid taxes by using such strategies as falsely declaring that their base of operations or residence is abroad.

Another daunting challenge is the so-called “submerged” economy, a term embracing Italians who declare only a fraction or nothing at all of their earnings — and dentists, lawyers, doctors and other big-earning professionals are frequently among the worst offenders.

Tax evasion of all types in Italy totals about euros 240 billion ($ 300 billion), or 15 percent of the country’s gross domestic product of €1.6 trillion ($ 2 trillion), tax police estimate. Winning the war on tax cheats could therefore more than wipe out the country’s budget deficit, which is expected to increase to euros 42 billion ($ 53 billion), or 2.6 percent of GDP this year. That would start knocking away at the nation’s colossal public debt of €2 trillion ($ 2.5 trillion), or 125 percent of GDP.

But “big international frauds are up,” lamented Lt. Col. Gianluca Campana, in charge of the income tax unit revenue protection office at the Guardia di Finanza, Italy’s financial police corps which reports to the Economy Ministry.

The entrenched practice by many cafes, eateries, hair dressers and similar small business of neglecting to give customers mandatory cash register receipts commonly grabs the attention in crackdowns on tax evasion in Italy.

But, cautioned Campana, “one false (big business) invoice can equal no cash register receipts for coffees for two months.”

Over all of 2011, the total of non-declared income discovered by tax police amounted to some €50 billion ($ 65 billion), of which some 20 percent was due to international tax evasion, he said. By comparison, in the first nine months of this year, tax police discovered some €40 billion in undeclared income, with 30 percent of that blamed on international tax evasion, Campana said.

With the economic crisis shrinking bottom lines, and Italy increasingly on the hunt for big-time evasion, especially by big businesses, “there is a tendency to move capital abroad, using maneuvers apparently legal but which really are not,” Campana said. A classic technique consists of declaring one’s formal residence abroad in tax havens like Monte Carlo. Also common are companies that clearly have their business base in Italy but claim it is abroad in countries with far lower tax brackets.

Campana is armed with three degrees, including a masters in tax law from Milan’s Bocconi University, the prestigious economics institute formerly headed by Monti. He brings skills to this specialized police corps that are as finely tuned as sharp-shooting.

“We are going after the big cases (of evasion) in order to rake in more money,” Campana said.

The Ferrari-driving plumber hid some €2 million ($ 2.6 million) of his income over several years by giving his customers invoices — for jobs ranging from fixing leaks to installing new bathrooms — for the actual cost of his work, but kept a second, false registry of much lower figures for tax purposes, said Pescara tax police Col. Mauro Odorisio.

Armed with a 2008 law, authorities confiscated assets belonging to the plumber equivalent to the approximately €1 million ($ 1.3 million) they contend he owed in taxes, Odorisio said.

With Ferraris in red or yellow, and snazzy Porsches parked inside, Guardia di Finanza garages practically resemble luxury car dealerships.

The cars get sold to help recoup unpaid taxes and interest.

Overall, tax revenues in Italy were up by 4.1 percent, says the Economy Ministry, when comparing figures from the first eight months of 2012 with the same period in 2011, but much of that was due to new taxes, and not necessarily a revolution in citizens’ consciences about tax obligations.

Monti’s recipe relies heavily on taxes that are nearly impossible to avoid, such as sales tax. He also revived a property tax that his populist predecessor, Premier Silvio Berlusconi, had abolished in a promise to voters.

The ministry’s report last month noted that the property tax figured prominently in the “tendency toward growth” in tax revenues. But sales tax revenue dropped slightly despite higher sales tax rates, indicating that consumers were feeling the pinch of the stagnant economy.

The heavier fiscal burden seems to have driven some honest citizens to rebel against the engrained culture of tax evasion.

The number of phone calls from the public to the tax police’s hotline to report stores, restaurants and other businesses that didn’t give customers sales receipts has almost doubled in the first nine months of this year, compared with the same period in 2011.

It’s apparently dawning on Italians that shirking taxes in the end only costs them, in terms of ever-higher levies and cutbacks in public services.

Citizens now increasingly understand that “the lack of revenue over time caused by tax evaders forced the government to stiffen the tax burden on categories where you can’t evade taxes,” Campana said, referring to workers whose taxes are deducted from paychecks. Another area where evasion is close to impossible is real estate ownership.

Odorisio noted the crackdown included extending the statute of limitations on tax evasion from six to eight years and establishing prison as a penalty for big-time evasion.

Other weapons include a measure promoted by the Monti government that limits cash payments to no more than €1,000. Paying by credit card or personal check is a relatively new habit for Italians, who are used to carrying wads of cash in their pockets, even for big-ticket items like home renovations or vacations.

Past governments in Italy sometimes resorted to tax amnesties to try to boost revenues. But critics, contending some Italians counted on such a possibility, described that strategy as only perpetuating the tax cheat culture.

Spain hasn’t had much success with its own tax amnesty introduced by the conservative government in March. That measure, expiring soon, allows undeclared assets or those hidden in tax havens to be repatriated by paying a 10 percent tax without criminal penalty. The amnesty is estimated to recuperate far less than the expected €2.5 billion ($ 3.25 billion).

Greece saw demands for tax system reform from international rescue creditors added on to conditions for future rescue loan payments, as Greek authorities acknowledged that a high-profile campaign to crack down on major tax cheats has produced disappointing results.

The cash-strapped government over the last 10 months recovered just €19 million ($ 25 million) of the €13 billion ($ 17 billion) of arrears on the list. A prominent Greek magazine publisher recently tapped anger over rich tax evaders by publishing a list of people allegedly holding Swiss bank accounts. He was acquitted this month of breaching privacy laws.

Meanwhile, Italian tax police are chasing after cheats who have shown some of the most chutzpah about not paying their fair share of taxes, like the Padua woman who advertised on the Internet that she had a couple of “cash-only” bed and breakfast rooms to let.

Tax police discovered the lodgings are part of an apartment in public housing she was given after falsely declaring she was indigent on her annual tax forms.

____

AP reporters Derek Gatopoulos in Athens and Ciaran Giles in Madrid contributed to this report.

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New Lumia phones seen winning Nokia more time

HELSINKI (Reuters) – Nokia‘s new Lumia smartphones are trickling into the market and early signs suggest they may sell well enough to give the handset maker more time in its fight against industry leaders Samsung and Apple.

But investors shouldn’t expect a quick turnaround for the struggling Finnish cellphone maker, with rival gadgets like mini tablet computers vying for consumers’ attention, analysts said.

“Positive reviews are a great start but as we have seen many times before these won’t deliver strong sales volumes on their own,” said Pete Cunningham, an analyst at research firm Canalys.

Successful sales of the latest Lumia 920 and 820 models are crucial for Nokia’s survival. The former market leader is burning through cash while it loses share in both high-end smartphones and cheaper handsets.

FIM Securities analyst Michael Schroder forecast Nokia will sell 1-3 million of the new models this quarter. It sold 2.9 million older Lumia models in the third quarter, compared to Apple’s sales of around 26.6 million iPhones in the same period.

“In any case the uptake will not be massive,” he predicted.

Lumia’s sales could serve a verdict on Chief Executive Stephen Elop‘s decision in February 2011 to partner with Microsoft instead of using Google‘s Android or continuing to develop Nokia’s own operating system.

Investors had feared poor reviews and weak sales could bring an end to the company’s smartphone business early next year.

So far, consumer reviews seem to favor the feel and look of the new models, which include high-definition cameras and the latest Microsoft Windows Phone 8 software.

“It (the Lumia 920) is very similar in appearance to the Lumia 900, but has curved glass, rounded edges, and curved back so it feels great in your hand. It is a dense device, but if you look at all the pros and cons the heft is worth it,” said a reviewer for tech website ZDNet.

That’s an improvement from the market’s reaction when the new model was first unveiled. The shares slumped 13 percent that day with investors citing a lack of a “wow” factor.

MAKE OR BREAK

Nokia is taking a gradual approach to launching the phones, and availability is expected to vary by market for the next few weeks, compared with Apple’s iPhone models which usually go on sale on the same day to global fanfare.

“While we are very impressed with the hardware features of the Lumia 920 and the improved software functionality of Windows Phone 8, we believe a focused launch to drive steady sales growth is necessary,” said Canaccord Genuity analyst Michael Walkley.

In Canada, one of the earliest launch markets, carrier Rogers Communications has trained its sales staff more to sell the latest Lumias than the previous models, said John Boynton, Rogers’ executive vice president of marketing.

He predicted the phones would be popular with first-time smartphone users, thanks to homescreens with tile-like icons designed to help users navigate applications and functions.

“They’re a little nervous at some of the more complex smartphones that are out there,” he said. “The tile format is a really, really simplified way for people to get comfortable using smartphones.”

In France, retail staff have become more confident in explaining Windows Phones to their customers, according to Laurent Lame, devices marketing chief at SFR which is the country’s second-biggest mobile operator.

“They know the product better after six months of good sales of the Lumia 610,” Lame said, adding he was now more optimistic about the Nokia-Microsoft partnership. “For once, with Windows 8, we are not starting from zero.”

Telefonica Deutschland Chief Executive Rene Schuster said he was “very, very pleased” with the early progress of Lumia sales.

Some retailers were more cautious, however, and in some cities there were no demonstration models for customers to test.

A salesman in an O2 store at the Zeil, Frankfurt’s busiest shopping area, said the store could take orders for the phone but could not show it. Demand was “okay, but not huge,” he said.

Analysts also expect tough competition during the pre-Christmas shopping season from the likes of Samsung’s Galaxy S III and Apple’s iPhone 5. Taiwan’s HTC has also introduced smartphones running Windows Phone 8 software.

Other rival gadgets include Apple’s iPad mini as well as cheaper tablets from Google and Amazon.

The stakes could not be higher for Nokia’s Elop, who said in February 2011 the company’s transition would take two years.

“This is absolutely a make-or-break phone for the Windows Phone strategy,” FIM Securities’ Schroder said. “If it fails, they have to take a whole new course.” (Additional reporting by Allison Martell in Toronto, Leila Abboud in Paris, Harro Ten Wolde in Frankfurt and Tarmo Virki in Helsinki; Editing by Mark Potter)

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Day-Lewis heeded inner ear to find Lincoln’s voice

LOS ANGELES (AP) — A towering figure such as Abraham Lincoln, who stood 6 feet 4 and was one of history’s master orators, must have had a booming voice to match, right? Not in Daniel Day-Lewis‘ interpretation.

Day-Lewis, who plays the 16th president in Steven Spielberg‘s epic film biography “Lincoln,” which goes into wide release this weekend, settled on a higher, softer voice, saying it’s more true to descriptions of how the man actually spoke.

“There are numerous accounts, contemporary accounts, of his speaking voice. They tend to imply that it was fairly high, in a high register, which I believe allowed him to reach greater numbers of people when he was speaking publicly,” Day-Lewis said in an interview. “Because the higher registers tend to reach farther than the lower tones, so that would have been useful to him.”

“Lincoln” is just the fifth film in the last 15 years for Day-Lewis, a two-time Academy Award winner for best actor (“My Left Foot” and “There Will Be Blood”). Much of his pickiness stems from a need to understand characters intimately enough to feel that he’s actually living out their experiences.

The soft, reedy voice of his Lincoln grew out of that preparation.

“I don’t separate vocal work, and I don’t dismember a character into its component parts and then kind of bolt it all together, and off you go,” Day-Lewis said. “I tend to try and allow things to happen slowly, over a long period of time. As I feel I’m growing into a sense of that life, if I’m lucky, I begin to hear a voice.

“And I don’t mean in a supernatural sense. I begin to hear the sound of a voice, and if I like the sound of that, I live with that for a while in my mind’s ear, whatever one might call it, my inner ear, and then I set about trying to reproduce that.”

Lincoln himself likely learned to use his voice to his advantage depending on the situation, Day-Lewis said.

“He was a supreme politician. I’ve no doubt in my mind that when you think of all the influences in his life, from his childhood in Kentucky and Indiana and a good part of his younger life in southern Illinois, that the sounds of all those regions would have come together in him somehow.

“And I feel that he probably learned how to play with his voice in public and use it in certain ways in certain places and in certain other ways in other places. Especially in the manner in which he expressed himself. I think, I’ve no doubt that he was conscious enough of his image.”

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War uproots 2.5 million Syrians, aid groups say

GENEVA (Reuters) – At least 2.5 million Syrians are believed to have fled their homes because of civil war, aid groups said on Tuesday, more than double previous estimates.

The figure comes from the Syrian Arab Red Crescent, whose volunteers are on the frontlines of the 20-month conflict, delivering aid supplies and evacuating wounded.

“The figure they are using is 2.5 million. If anything, they believe it could be more, that this is a very conservative estimate,” Melissa Fleming, chief spokeswoman of the U.N. High Commissioner for Refugees (UNHCR), told a news briefing.

“So people are moving, people are really on the run, hiding. They are difficult to count and to access,” she said.

Aid agencies had previously thought there were around 1.2 million internally displaced Syrians.

Only 5 percent of the 2.5 million are believed to be living in public facilities, including warehouses and schools, said Fleming. The rest are staying with host families, making it more difficult to count them.

In recent days, air strikes on the town of Ras al-Ain near the Turkish border have caused some of the biggest refugee movements of the conflict.

The United Nations said on Friday that up to 4 million people inside Syria will need humanitarian aid by early next year when the country is in the grip of winter, up from 2.5 million now whose needs are not fully met.

For now, the U.N. World Food Programme (WFP) says its food rations are reaching some 1.5 million. The UNHCR aims to provide assistance to 500,000 in Syria by the end of the year, mainly blankets, clothing, cooking kits and jerry cans, Fleming said.

“Unfortunately the recent deliveries have been very difficult, marred by violence and insecurity also spreading to parts of the country that used to be relatively calm,” she said.

A Syrian Arab Red Crescent warehouse in Aleppo was apparently hit by a shell, burning 13,000 blankets, she said. Unknown armed men hijacked a truck carrying 600 blankets on its way to Adra, outside Damascus.

The UNHCR has temporarily withdrawn about half of its 12 staff from north-eastern Hassaka province due to fierce fighting and insecurity, Fleming said.

“We see corresponding movement of populations there, Syrian Kurds for the most part, across the border into Iraq,” she said.

More than 407,000 Syrian refugees have registered or await registration in the surrounding region – Lebanon, Turkey, Jordan and Iraq – and more are fleeing every day, according to UNHCR.

(Editing by Tom Pfeiffer)

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UK inflation rate rises to 2.7%

13 November 2012 Last updated at 06:29 ET

Phil Gooding, Office for National Statistics: “There are two main drivers behind the event, that comes from education and food”

The UK’s inflation rate rose sharply last month following an increase in tuition fees and food prices.

The Office for National Statistics (ONS) said the rate of Consumer Prices Index (CPI) inflation rose to 2.7% in October, up from 2.2% the month before.

The ONS said education costs rose by 19.1% last month after the government lifted the cap on university fees.

Food prices, especially vegetables, also rose after record wet weather earlier this year affected crop yields.

Confectionery prices also increased. The ONS said this was because a number of confectionery products had been reduced in size.

It said it treated this as a price increase in the inflation measures, as consumers were getting less for their money.

The Retail Prices Index (RPI) measure of inflation – which includes housing costs – rose to 3.2% from 2.6%.

The Treasury said the figures were “disappointing”.

Labour’s Shadow Treasury minister, Catherine McKinnell, said the increase was “worrying”.

Continue reading the main story

When the Bank of England decided last week not to create more money to support the recovery, some of us wondered why they didn’t offer an explanation”

End Quote

The ONS also announced it would be introducing a new way of measuring inflation next March, the CPIH, which will include housing costs, something that is not reflected significantly in the currently favoured measure.

Energy prices

September’s CPI inflation rate was the lowest for almost three years, and was significant as it is the month on which rises in many benefits is based.

However, inflation had been expected to pick up from that point, partly because of a recently announced round of energy price rises that are expected to affect inflation figures in the coming months.

The ONS said SSE’s price rise of about 9%, which came into effect last month, was not included in the October inflation figures.

Ross Walker, UK economist at RBS, said the latest figures were slightly worse than predicted.

“They are a little bit disappointing, higher than expected, above the range,” he said. “Ironically, we had the tuition fee increases that are roughly what we expected and the surprise for us was the extent of the food price increase.”

The cap on charges for tuition fees was raised by the government from £3,375 to £9,000 a year.

The Bank of England is charged with keeping inflation close to 2%, something it has struggled to do in recent years, as the standard way of suppressing prices is to raise interest rates, which it does not want to risk during this period of weak economic activity.

Alan Clarke, economist at Scotia Bank, said that target remained elusive: “Where do we go from here? Onwards and upwards. Utility bill increases are on their way. We’ve also got the effect of the US drought and increased food prices to factor in.

“I don’t think we’re going to get anything like the 2% inflation target.”

The Bank of England’s quarterly inflation report will be published on Wednesday.

The rise in inflation may make it less likely that the Bank will provide further stimulus to the economy in the form of quantitative easing.

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General investigated for emails to Petraeus friend

PERTH, Australia (AP) — In a new twist to the Gen. David Petraeus sex scandal, the Pentagon said Tuesday that the top American commander in Afghanistan, Gen. John Allen, is under investigation for alleged “inappropriate communications” with a woman who is said to have received threatening emails from Paula Broadwell, the woman with whom Petraeus had an extramarital affair.

Defense Secretary Leon Panetta said in a written statement issued to reporters aboard his aircraft, en route from Honolulu to Perth, Australia, that the FBI referred the matter to the Pentagon on Sunday.

Panetta said that he ordered a Pentagon investigation of Allen on Monday.

A senior defense official traveling with Panetta said Allen’s communications were with Jill Kelley, who has been described as an unpaid social liaison at MacDill Air Force Base, Fla., which is headquarters to the U.S. Central Command. She is not a U.S. government employee.

Kelley is said to have received threatening emails from Broadwell, who is Petraeus’ biographer and who had an extramarital affair with Petraeus that reportedly began after he became CIA director in September 2011.

Petraeus resigned as CIA director on Friday.

Allen, a four-star Marine general, succeeded Petraeus as the top American commander in Afghanistan in July 2011.

The senior official, who discussed the matter only on condition of anonymity because it is under investigation, said Panetta believed it was prudent to launch a Pentagon investigation, although the official would not explain the nature of Allen’s problematic communications.

The official said 20,000 to 30,000 pages of emails and other documents from Allen’s communications with Kelley between 2010 and 2012 are under review. He would not say whether they involved sexual matters or whether they are thought to include unauthorized disclosures of classified information. He said he did not know whether Petraeus is mentioned in the emails.

“Gen. Allen disputes that he has engaged in any wrongdoing in this matter,” the official said. He said Allen currently is in Washington.

Panetta said that while the matter is being investigated by the Defense Department Inspector General, Allen will remain in his post as commander of the International Security Assistance Force, based in Kabul. He praised Allen as having been instrumental in making progress in the war.

The FBI’s decision to refer the Allen matter to the Pentagon rather than keep it itself, combined with Panetta’s decision to allow Allen to continue as Afghanistan commander without a suspension, suggested strongly that officials viewed whatever happened as a possible infraction of military rules rather than a violation of federal criminal law.

Allen was Deputy Commander of Central Command, based in Tampa, prior to taking over in Afghanistan. He also is a veteran of the Iraq war.

In the meantime, Panetta said, Allen’s nomination to be the next commander of U.S. European Command and the commander of NATO forces in Europe has been put on hold “until the relevant facts are determined.” He had been expected to take that new post in early 2013, if confirmed by the Senate, as had been widely expected.

Panetta said President Barack Obama was consulted and agreed that Allen’s nomination should be put on hold. Allen was to testify at his confirmation hearing before the Senate Armed Services Committee on Thursday. Panetta said he asked committee leaders to delay that hearing.

NATO officials had no comment about the delay in Allen’s appointment.

“We have seen Secretary Panetta‘s statement,” NATO spokeswoman Carmen Romero said in Brussels. “It is a U.S. investigation.”

Panetta also said he wants the Senate Armed Services Committee to act promptly on Obama’s nomination of Gen. Joseph Dunford to succeed Allen as commander in Afghanistan. That nomination was made several weeks ago. Dunford’s hearing is also scheduled for Thursday.

___

Associated Press writer Slobodan Lekic in Kabul, Afghanistan, contributed to this report.

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Microsoft’s Surface tablet has “modest” start: Ballmer

PARIS (Reuters) – Microsoft Corp‘s new Surface tablet – its challenger to Apple‘s iPad – had a “modest” start to sales because of limited availability, Microsoft Chief Executive Steve Ballmer told French daily Le Parisien.

The world’s largest software company put the Surface tablet center stage at its Windows 8 launch event last month in its fightback against Apple and Google in the exploding mobile computing market.

“We’ve had a modest start because Surface is only available on our online retail sites and a few Microsoft stores in the United States,” Ballmer was quoted as saying.

Meanwhile, 4 million upgrades to Windows 8 were sold in the three days following the system’s launch, Ballmer added. (Reporting by Lionel Laurent; Editing by David Cowell)

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Vt. Mom Begs FDA: Save My Other Son

Jenn McNary, a mother of six from Saxtons River, Vt., is desperate.

Both her boys have Duchenne muscular dystrophy, but only her 10-year-old Max has access to a wonder drug that appears to be reversing the symptoms of this deadly disease.

His 13-year-old brother Austin is languishing in a wheelchair while Max has been able to take the drug eteplirsen through a highly successful clinical trial.

After 60 weeks on an IV infusion, Max was able to participate in a three-mile Halloween walk.

“It’s the first time ever — he’s never been able to walk that far. He’s always gone with a wheelchair, even as a toddler,” said McNary, 32. “He actually doesn’t look like a Duchenne kid at all. And his balance is great.”

“People all over the world are calling it a miracle,” she said of the drug.

Now, McNary has written petitioned the Food and Drug Administration to give accelerated approval of the medication, the fastest way to help Austin and other boys with the disease.

Both boys, whose last name is Leclair, have the same gene mutation that the drug targets and will eventually kill them. Austin was diagnosed at 3 and Max at 3 months.

McNary and her husband Craig are also raising four other healthy children in a second marriage.

There is no cure for Duchenne muscular dystrophy. Until now, doctors have only been able to use steroids, which just temporarily delay the inevitable loss of muscle strength.

“My brother says he’s doing it for me, that he’s trying really hard,” Austin told ABCNews.com in August. “That’s why he wanted to do it.”

Austin was not allowed to participate in the clinical trial because one of the inclusion criteria was that he be able to complete a six-minute walk.

“This has been a bitter-sweet journey for us,” McNary wrote in a letter to the FDA this week. “As we watch Max get better, we also watch his older brother, Austin, 13, get worse. He suffers, silently, as his disease progresses.”

Duchenne muscular dystrophy affects one in 3,500 male births, about 20,000 children in the United States and 300,000 worldwide, according to Cure Duchenne, one of three organizations that have funded the clinical trial.

The muscular disease strikes between the ages of 3 and 5 as boys progressively lose their ability to walk. Eventually, they are wheelchair bound, their upper body strength fails, and, like Austin, they eventually cannot raise their arms to feed themselves.

Later, their breathing is affected and they require tracheotomies and breathing assistance. Eventually, the heart and lungs fail.

Parents of children who were in the clinical trial of eteplirsen at Nationwide Children’s Hospital in Columbus are calling it a “wonder drug.”

According to McNary, all 12 children in the double-blind study received “some benefit” from the drug. It has no known side effects.

“Even two boys who stopped walking before taking it have stronger upper bodies and their hearts are strong,” she said. “They have progressed to stable.”

Muscular Dystrophy Drug Could Stabilize Disease

If this exon-skipping drug is approved, she estimates 15 percent of boys with Duchenne could be helped, those with the type that skips exon 51. As a class of drugs, they could up to 85 percent of boys with the disease.

Stock prices for its manufacturer, Sarepta Therapeutics. , have soared.

If Sarepta Therapeutics can get accelerated approval, the drug could be available in six to nine months, according to McNary. Otherwise, the wait could be four or five years — too late for Austin.

“We are very encouraged by the data we have seen to date,” said Chris Garabedian, president and CEO of Sarepta Therapeutics, which makes the drug and is pressing the FDA to take action.

“If we start using the drug earlier in patients, we might be able to stabilize whatever state they are in for a longer period of time,” said Garabedian. “We are not going to end up creating Olympic athletes from this drug, but we are encouraged this could really halt or slow the progression.”

McNary is reaching out to media and online petition sites to encourage as many people as possible to write letters of support to the FDA.

But as she waits approval, Austin gets weaker. In the last few months, he has lost all upper body control and must be lifted 100 percent of the time.

Just recently, he was diagnosed with sleep apnea and must go on a nighttime machine to keep his lungs inflated.

Austin keeps his spirits high, according to McNary.

On Halloween, he dressed his wheelchair up as a hot dog stand, carrying his dachshund in a cloth bun. And just recently, his father and uncle took him hunting. They held up the gun for Austin and he shot his first buck — an eight-pointer.

McNary is convinced that if the FDA can move on approving the drug that has healed Max, it can also help Austin.

Until then, he’s “hanging in there,” she said. “He has a huge zest for life.”

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In This Junkyard, It Seems, There Are No Dogs

It’s kind of Orwellian that anyone would rapaciously buy an ETF with the ticker JNK—branding shorthand for “junk,” Wall Street’s sobriquet for high-yield, the riskiest layer of corporate bonds.

Nevertheless, JNK, the SPDR Barclays Capital High Yield Bond ETF, and competitor offerings are a hot destination in these yield-famished days. The appeal is irrefutable: You’ll get precious little income from Treasuries and muni bonds. Creditworthy corporations are borrowing at record lows. Why not then pile into riskier, higher-yielding debt, especially if you can do so via one tidy, exchange-traded ticker? (No need to ring Michael Milken.) What’s more, Moody’s sees the global default rate for “speculative-grade” debt ending the year at 2.8 percent, compared with an average of 4.8 percent since 1983. Yields have fallen 1.65 percentage points this year, to 7.05 percent on Nov. 1, according to Bank of America Merrill Lynch data.

What’s not to love?

An overcrowded trade marked by 2007-like issuer complacency—that’s what. More companies are demanding and getting easy terms on their junk issues. The most popular junk ETFs are going deeper into credit risk to scrape for yield. The sluicing of retail money into these ETFs is perpetuating what has historically proved to be a vicious trend. “Signs of over-exuberance are creeping into the corporate credit market,” wrote Michael Lewitt, a hedge fund manager who publishes the Credit Strategist. “In the past, rising issuance of these types of low-quality bonds has been a warning that a market rally is coming to an end … Today’s new issues will be the troubled credits of tomorrow.”

On Nov. 7, Standard & Poor’s warned of the unprecedented dangers of a brave, new junk bond world. Wrote credit analysts Diane Vazza and Evan Gunter:

“The ease with which investors can enter and exit ETF investments creates new and risky dynamics in the speculative-grade market with the potential flow of ‘hot money.’ Speculative-grade companies have a higher default risk than investment-grade companies. Therefore, when the credit cycle turns against investors, losses from defaults can quickly outstrip the additional interest payments that high-yield investors receive. Since we are entering the stage of declining credit quality in the current credit cycle, the credit quality of an issuer or a portfolio has become paramount.”

Vazza and Gunter looked under the hoods of JNK and its rival, HYG, the iShares iBoxx $ High Yield Corporate Bond Fund. They found that both ETFs owned a higher proportion of the riskiest junk debt versus the overall high-yield market. While they estimated that the broad universe of high yield includes 7.9 percent of bonds rated CCC+ and lower, their share in HYG’s portfolio is at 11.0 percent and in JNK just under 10 percent. While higher risk juices returns in a favorable environment like the present one, the analysts explained, they take outsized losses once the credit cycle turns.

Sales of junk debt in the U.S. have come in at $ 294 billion so far this year, the fastest pace on record. It’s in that booming backdrop that private equity-owned companies have paid out $ 34.1 billion in dividends this year, according to Standard & Poor’s Capital IQ Leveraged Commentary & Data. That’s north of 2010’s total of $ 31.5 billion and the $ 23.8 billion paid out in 2007, when the leveraged buyout market peaked. By comparison: Some $ 1.2 billion in dividends were issued in 2008 and $ 440 million in 2009.

This boom has prompted an echo-boom in payment-in-kind transactions, or PIK toggles, which let companies pay interest in debt rather than cash, essentially deferring payments to their investors. That tactic was a hallmark of the private equity bubble of five years ago. According to Moody’s, as of mid-October two of the third quarter’s 14 dividend financings enjoyed PIK toggle structures, including Emergency Medical Services’ $ 450 million of notes to pay a dividend to Clayton, Dubilier & Rice and IDQ Holdings’ $ 45 million deal supporting a payout to Castle Harlan. Last month, Petco also got in on the PIK toggle boom.

Caveat junktor. Moody’s calculates that the default rate for companies that sold PIK-toggle bonds was 13 percent from 2006 to 2010, twice the rate for similarly rated issuers that didn’t use the tactic.

“Low yields are driving more and more investors into really strange territory,” says Lee Pacchia, a Bloomberg Law analyst who follows corporate bankruptcies. “They need to take on risk. While the market forces driving this trend could go on for a while, lowering standards could end badly. It’s called ‘junk’ for a reason.”

The institutional smart money is increasingly taking the other side of that trade. According to Bloomberg data, the number of bearish options on HYG are at an all-time high: The number of outstanding puts on HYG has almost doubled since Oct. 19, to a record of 118,444 at the end of last month. Hedge funds seeking that bet on both gains and losses in credit attracted $ 12.6 billion of deposits in the three months ended Sept. 30, the most since the last quarter of 2007, according to HFR.

It all makes you wonder how quickly people may have forgotten the lessons of the credit bubble, or what one hedgie has called the era of promiscuous lending. Will today’s junk boom end so differently?

“The history of money is a sad state of affairs,” wrote Prudent Bear’s Doug Noland in his recent post, titled “The Myth of Deleveraging.” “Failing to learn from a litany of previous monetary fiascoes, ‘money’ is these days being abusively over-issued.”

Farzad is a Bloomberg Businessweek contributor.

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