The impetus for this article was an interaction with a colleague about the opioid abuse epidemic and its social policy implications. Considering the various issues he asked a simple question, “What’s the investment angle?”
Before getting into the weeds with an answer, some foundation is needed to provide context. It seems wise to begin with the epidemic itself.
The Opioid Abuse Epidemic
The death rate from drug overdose in the United States is climbing at a much faster pace than other causes of death. In fact, drug overdose is the leading cause of accidental death in the US, with 52,404 lethal drug overdoses in 2015. More than 20.5 million Americans age 12 or older had a substance abuse disorder in 2015; of which about two million had a disorder involving prescription pain relievers. Opioid addiction is driving this epidemic, with 20,101 overdose deaths related to prescription pain relievers, with 12,990 overdose deaths related to heroin in 2015. And, four in five new heroin users started out abusing prescription painkillers.
Beyond the tragic loss of life, it has been estimated that abuse drains almost $80 Billion a year from the U.S. economy as a result of lower worker productivity, lost tax revenues, increased costs from demands on criminal justice (both enforcement and incarceration), and the rise of attendant medical care, as addicts and abusers inevitably make their way into the healthcare system through emergency room visits or substance abuse treatment.
With the socio-political-legal-regulatory concerns about opioid abuse, we see a clear and concerted effort to reduce the availability of opioid drugs and to penalize those companies believed to have contributed to the epidemic. So, let’s briefly look at these separate efforts.
The Regulatory Effort
In 2016, the Centers for Disease Control and Prevention (NASDAQ:CDC) created guidelines for “primary care clinicians” when prescribing opioids for chronic pain outside active cancer treatment, palliative care, and end-of-life care. The stated purpose of the guidelines was to “improve communications between clinicians and patients” about the risks and benefits of opioid use for chronic pain. It should be noted that the guidelines do not specifically mention prescribing opioids for acute pain, a condition accounting for the greatest number of pain drug prescriptions. However, as an across the board measure, the CDC recommended that doctors should avoid prescribing patients more than 90 milligrams of morphine equivalent per day or “they must justify their decision” to do so; a statement that sounds less like recommendations and more like mandates.
In an August 2016 article, The Pain News Network, a 501(c)(3) non-profit online news source for information and commentary about chronic pain and pain management, indicated the CDC Guidelines reflected a number of the myths that have developed since they were released. Chief among them are that the guidelines are mandatory and remove physician discretion. This is grossly untrue.
In fact, in a letter to a pain patient, Debra Houry, MD, Director of the CDC’s National Center for Injury Prevention, the entity that oversaw the guidelines’ development, stated, “The Guideline is a set of voluntary recommendations intended to guide primary care providers as they work in consultation with their patients to address chronic pain. The Guideline is not a rule, regulation, or law. It is not intended to deny access to opioid pain medication as an option for pain management. It is not intended to take away physician discretion and decision-making.”
While that seems to be the intent, there are unintended consequences.
Chronic pain patients who always took their medications as prescribed, who never refilled doses early or doctor-shopped to get extra pills, got caught up in the stampede to comply with the misinterpreted CDC Guidelines. To get under the threshold the guidelines created, some doctors immediately cut doses for those patients they decided to retain. While some patients were referred to pain specialists, many others were dropped and left with no alternative beyond the black market.
“There are people who are totally innocent in this situation. They went to the doctor, they took their pills as prescribed, and they got cut off,” said Dr. Benjamin Schwartz, founder of Recovery Works Northwest, an addiction treatment practice in Portland.
Doctors may be trying to curb abuse, but they are actually making the medication less available for compliant users. As if on cue, some insurance companies will not cover opioids above the CDC threshold and health systems are setting hard ceilings with forced tapers to get patients under their limits.
“That’s a huge public health disaster,” said Leo Beletsky, assistant professor of law and health sciences at Northeastern University in Boston. “You want to have those patients in your practice, you want to focus on them, you want wrap them in care, you want to engage them on an even more intense level. When those patients are cut off from healthcare services, their risk increases tenfold. That person is probably not going to show up in the healthcare system again until they overdose.” Or worse.
“A significant number of chronic pain patients are killing themselves, actually committing suicide, and that should be a concern to society at large. When people die as a result of actions meant to care for them, we are doing something wrong,” said Dr. Stefan Kertesz, an addiction medicine specialist at the University of Alabama at Birmingham School of Medicine.
Kertesz said many healthcare professionals have misread the CDC Guidelines, interpreting them to mean they should reduce doses in the patients who are currently stable and that reduction actually helps the person. “The CDC Guidelines absolutely did not recommend that practice, and there’s not a shred of evidence to show that it is safe or effective,” he said.
At the National Rx Drug Abuse & Heroin Summit in Atlanta in April 2017, Dr. Deborah Dowell, a CDC senior medical adviser and coauthor of the guidelines, said that creating mandates was not the authors’ intent. Nonetheless, the CDC Guidelines and its dose threshold are quickly becoming a bright line to distinguish between appropriate and inappropriate opioid use, and a yardstick by which doctors may find themselves judged in a court of law. And, we have seen in California, Florida and Michigan there have been a few prescribers charged criminally and subject to penalties and sanctions. However, these are not the attractive, deep pockets of pharma, businesses that carry the burden of perceived “abusive” pricing.
This raises the question of motive and whether it is really about solving a public crisis. Perhaps it is to figure out how to redirect the cost of a public health issue that seems awfully similar to the soda tax, previous efforts to sue the gun manufacturers, or class action suits involving Big Tobacco. “What you’re getting now is a lot more legal minds across the country focusing on this, and figuring out how to pay these huge bills,” according to Sam Quinones, the author of Dreamland: The True Tale of America’s Opiate Epidemic. “Everyone is groping for a legal theory that will work in court.”
To that point…
Legal Efforts to Address the Opioid Abuse Epidemic
During the past year, more than 20 state and local governments have filed lawsuits against drug makers and distributors they claim have fueled the opioid abuse epidemic in the United States. Beyond the three state cases (Ohio, Mississippi & Missouri), there were similar lawsuits filed by local governments, including two California counties; the cities of Chicago and Dayton, Ohio; and three Tennessee and nine New York counties. Additionally, the Cherokee Nation filed a lawsuit against distributors and pharmacies in tribal court over the opioid epidemic.
The companies targeted in these lawsuits include: Johnson & Johnson (NYSE: JNJ), Endo International (NASDAQ: ENDP), Teva Pharma (NYSE: TEVA), Pfizer (NYSE: PFE), Mallinckrodt Pharma (NYSE: MNK), Purdue Pharma (PRIVATE), AmericsourceBergen (NYSE: ABC), and McKesson (NYSE: MCK).
The legal argument generally centers on false advertising related to a failure to make clear the addictive qualities of opioids, and we can throw in the argument some are using in aggravation that indicates the use of opioids for chronic pain is not supported by research. The same cannot be said about opioids prescribed for acute pain, for which more than 90% of all prescriptions are written (there will be more on this point later).
To be certain, governmental action against opioid manufacturers has some history.
In 2004, the state of West Virginia and Pike County, Kentucky settled parens patriae cases with Purdue Pharma for $10 million.
In 2007, Purdue Pharma settled with 26 states and the District of Columbia for $20 million for unlawfully marketing Oxycontin. The multi-state class action lawsuit was inspired by the West Virginia settlement and alleged that Purdue misbranded Oxycontin as “less addictive, less subject to abuse and diversion, and less likely to cause tolerance and withdrawal than other pain medications.” Kentucky refused a $500,000 offer in the case, fought for more money, and in 2015 settled with Purdue for $24 million.
Beginning in 2011, the Drug Enforcement Administration (NYSE:DEA) began putting together a case against Mallinckrodt Pharmaceuticals, a major manufacturer of generic oxycodone, for violating laws meant to prevent diversion of legal pain pills to the black market. It was the largest prescription drug case the DEA has ever pursued, spanning six years and five states and led to a settlement of $35 Million.
According to Mississippi Attorney General Jim Hood, “For over two decades, these pharmaceutical companies have made billions of dollars in profits by misrepresenting to tens of millions of doctors and patients the significant dangers of prescription opioids-marketing the drugs as rarely addictive. The (Mississippi) lawsuit seeks to end these deceptive marketing practices, impose civil penalties, and obtain an order requiring the drug companies to address the harms created by their deceptive conduct, including skyrocketing medical costs and crime. I want to make these few drug companies pay for the damage they have done and for treatment of addictions they caused.”
However, the reality is that lawsuits alone won’t bring the opioid epidemic under control. Because the problem is systemic, new policies are needed at the state and federal levels that address the factors responsible for widespread opioid addiction. But such discussion is beyond the purview of this article. Amidst the question of opioid abuse, the salient question for this audience is – What’s the investment angle?
Well, let’s take a look.
The Opioid Pain Medicine Market
Comparisons are always a good place to start. How about the much talked about potential market for drugs able to treat NASH by 2025? What about the Hep C market by 2022? Any investor in companies seeking to enter or gain leadership in these markets knows that for many companies, it appears the opportunity abounds. Well, here is an eye opening reality…each of those two growing markets are but a percentage of the global opioid pain med market projected to be $42 Billion by 2021. While both NASH and Hep C are firmly in the therapeutic sights of Gilead (NASDAQ: GILD), which is seeking market presence in one and showing dominance in the other, the opioid pain med market is not one clearly dominated by a single company and, more importantly, it is undergoing transformation.
To that point, non-abuse deterrent opioids represent 98% of all prescriptions in the market. However, we are at the start of an opioid pain med market disruption; one that is seeing an effort by companies – big and small – to create drugs with abuse deterrent formulations – commonly referred to as ADFs. These drugs seek to perform in one of three ways recommended by the FDA – preferably in all three – Oral, Nasal, and Intravenous. While there are ADFs that have been approved by the FDA, they only comprise 2% of the market.
So it is that, with the size of the opioid pain med market and the potential transformation to ADFs lay a significant market opportunity for companies, and an opportunity for the capable investor.
Despite the noise from politicians and others that suggest a diminution of the opioid pain med market, analysts in the field have cited demographic and global consumer changes that will result in sustainable growth in the market for the next ten years.
We know that the Immediate Release market segment is the largest of the current non-ADF market (about 90%) and the one unlikely to be affected by the political noise in the developed and developing world, due to a desire for a higher quality of life affected by improved income levels, an aging population (boomers are everywhere), improved living conditions, an increased access to healthcare, and increased surgical procedures, which will produce the occasional complications and the corresponding need to extend the use of pain meds.
Where is the Investment Opportunity in the Opioid Abuse Epidemic?
The National Institute for Drug Abuse (NIDA) recognizes opioid medications have a legitimate role in the treatment of acute pain and some chronic pain conditions. However, it is clear that they often are overprescribed or prescribed without adequate safeguards and monitoring, and that misuse can have devastating effects. Among the recommendations NIDA made to address abuse including the need to develop opioid drugs with abuse deterrent formulations . In fact, not only do they recognize that the drugs provided by pharma companies are a necessary line of therapy for both acute and chronic pain, they also make it clear they believe it is nonsense to suggest that damning the drug companies and limiting their ability to sell opioids is the solution. Rather, what is needed is to engage the pharma companies, encourage them, and embrace their development of pain drugs that can deter abuse.
Where might one look for ADFs as an investment opportunity?
The Motley Fool suggests investors should recognize that being sued does not infer liability and the process of litigation can be lengthy and with uncertain outcomes. What is critical is that investors analyze the different companies to determine their product lines and how a successful lawsuit might affect the company in which they look to invest. For example, because they are highly diversified, J&J and Pfizer are insulated from the impact of a lawsuit related to a limited product or line of therapy. However, the other side of the concern lies with a company like Endo that was asked by the FDA to remove its flagship opioid pain product from the market.
With the FDA Guidelines of April 2015 making it clear the need for abuse deterrent opioids, the business opportunity is notable and made more so with “noise being made” by the FDA that, once abuse deterrent drugs reach critical mass, it would consider outlawing all non-abuse deterrent opioids from the US drug market. According to the FDA, “The science of abuse-deterrent technology is still relatively new and evolving. The final guidance is intended to assist drug makers who wish to develop opioid drug products with potentially abuse-deterrent properties. The FDA is working with many drug makers to support advancements in this area and help drug makers navigate the regulatory path to market as quickly as possible. In working with industry, the FDA will take a flexible, adaptive approach to the evaluation and labeling of potentially abuse-deterrent products.”
The appointment of Scott Gottlieb to Commissioner of the FDA seems to be a move in the direction of making the Guidelines a working reality in the effort to address the opioid abuse epidemic.
In response to growing scrutiny of the drug industry’s role in the crisis, pharmaceuticals companies have been developing so-called ADFs, designed to be harder to crush or dissolve and therefore more difficult to abuse in either Oral, Nasal or IV form. The reformulated opioids aren’t perfect and the FDA has asked drug-makers to conduct long-term studies to assess the real-world effectiveness of abuse-deterrence.
Hopefully it has been made clear to readers that there is an investment opportunity. But the question is with whom? As noted by Seeking Alpha Editor Douglas House, “Investor interest should pick up in companies developing alternatives to traditional opioid pain killers after the FDA’s action to remove Endo’s OPANA ER (oxymorphone HCl) from the U.S. market due to its abuse potential.”
With that, what companies might offer an investment?
While it is impossible to provide a comprehensive list in this article, born of my own due diligence I offer a short list of those companies that might be worthy of consideration by investors, who should be making their investment decisions outside the realm of some blog or article.
Since half of the ten FDA approved ADFs are owned by two privately held firms, it is worth mentioning them as context, even if not for investment potential. To that point, the FDA approved ADFs include: Oxycontin, Targiniq ER and Hyslinga (Purdue Pharma – PRIVATE), MorphaBond & Roxybond (Inspirion Delivery Sciences – PRIVATE), Embeda and Troxyca ER (Pfizer – NYSE: PFE), Vantrela ER (Teva – NYSE: TEVA), Xtampza (Collegium – NASDAQ: COLL), Arymo ER (Egalet – NASDAQ: EGLT). To date, there are no FDA approved generic ADFs.
I would begin with the biggest seller (and the most vilified), Purdue Pharma. And, before dismissing them because there is no investment opportunity with a privately held firm, it is important to recognize they are the biggest seller of prescription opioids, largely in extended relief formula for chronic pain. While they have developed ADFs, there are concerns about the stability of the 12 hour release that might lead to overdose.
The other privately held company, Inspirion Delivery Sciences received approval for an immediate release abuse deterrent opioid (Arymo) in April 2017. It is the first IR opioid with abuse deterrence. However, it did not receive approval for an Oral label in abuse deterrence, which may prove a problem in commercialization. In 2015, it also had MorphaBond approved by the FDA as an ER ADF.
Pfizer is the biggest pharma company engaged in the development of pain meds. They bought the rights to Embeda, an extended release opioid with abuse deterrent properties when it acquired King Pharma in 2010. However, the effort to commercialize has been uneven. In 2011, Pfizer voluntarily recalled the drug due to stability issues. Fast-forward to 2014 when it received FDA approval as an ADF and began to commercialize the drug. A new form of an ER abuse deterrent drug – Troxyca – received approval by the FDA in 2016 but it has yet to see the light of commercialization.
Another big pharma firm, Johnson & Johnson, through its division Janssen Pharma, was a seller of opioids and they, too, are on the radar screen of various state attorneys general. But they sold their non-ADF opioid Nucyenta ER and Nucyenta IR to Depomed (NASDAQ: DEPO) in 2015, and with it any effort at developing abuse deterrent drugs. Incidentally, Depomed has a partnership with Mallinckrodt on Xartemis; which is an FDA approved non-ADF pain med for acute severe pain.
Allergan (NASDAQ: AGN), by virtue of its many acquisitions, found itself in the pain medicine business. However, their exposure has been reduced with the sale of their generic business to Teva; which has its own pain drug business and is one of the many facing litigation. In early 2017, Teva received FDA approval for Vantrela an ER ADF opioid, used to treat pain severe enough to require daily, around-the-clock, long-term opioid use.
There are also a number of smaller companies involved in developing abuse deterrent drugs:
Collegium (NASDAQ: COLL) has an ADF opioid – Xtampza, an extended release product for which the company received FDA approval in April 2016. According to the information available, while on the Express Scripts formulary, they are having less than stellar sales.
Egalet has an abuse-deterrent extended release morphine product – Arymo ER – that was approved by the FDA in January 2017. It, however, only received abuse deterrence approval for the intravenous route; which is only one of the three routes desired by the FDA. Investors wondering why the share price is repressed need to grasp this reality.
Acura (NASDAQ: ACUR) has the Aversion technology, a patented mixture of gelling ingredients and nasal irritants designed to discourage typical methods of opioid abuse. Egalet secured global rights to the product in January 2015. Interestingly, it was this technology that Pfizer acquired licensing to and then returned to Acura in 2014, along with a $2 Million one-time royalty payment. (At last check Acura is in penny-stock territory.)
KemPharm (NASDAQ: KMPH) is a work in progress. The FDA PDUFA hearing Committee determined by a vote of 16 to 4 that its drug Apadaz should be approved for its proposed indication of the management of acute pain that requires an opioid. However, it voted 18 to 2 against the inclusion of abuse deterrent labeling for the product. With that, it is just another opioid on the market.
Durect (NASDAQ: DRRT) (in a deal with Novartis (NYSE: NVS) non-opioid post surgical pain med (Posimir) previously rejected in 2014 for safety, is expected to complete a Phase-3 trial in August 2017. It is a drug given via local injection given at the surgical site by surgeon at end of operation.
Pain Therapeutics (NASDAQ: PTIE) has a lead candidate called Remoxy ER, a proprietary oral formulation of oxycodone for which it holds worldwide commercialization rights. However, Remoxy ER is an investigational drug and is not authorized for marketing in the U.S. for any indication.
Finally, a firm that came to my attention during my research was Elite Pharma (OTCQB: ELTP). Beyond their sitting on the OTC, what is remarkable is that they survived near bankruptcy and under new leadership began to generate revenues as a small generic drug company with ADF aspirations. In January 2016, they filed an NDA based on a patented technology for an immediate release ADF (SequestOx) and were given Priority Review status. But SequestOx received a CRL in August 2016. While Elite is currently working with the FDA to address the issues and refile for approval by year’s end, they are not singularly focused. They have engaged in a partnership with a small private biotech and filed multiple ANDAs designed to generate additional revenues. They also have ER ADFs in their developmental pipeline.
While a diversified investor skeptical of the small, unproven company, Elite’s story is compelling and its potential caused me to take a position. Hey, no risk no reward.
On that, I would point out, as before – I do not give investment advice. Do your own research work and, as the Motley Fools say, determine what investments make sense for you.
The Opioid Abuse Epidemic is real and in an attempt to ameliorate the crisis, whether well meaning or self-serving, doctors are reducing patient access to pain drugs. The evidence makes it clear that those actions are doing harm to millions of Americans who were on long-term opioids. As a result, some are seeking to buy their drugs on the black-market, risking overdose, and others have committed suicide when unable to stem the pain.
That some patients are being “fired” by their doctors seems unconscionable, as are those insurance companies dictating limits for pain drugs because the types and the conditions for which they will pay for a prescription fits neatly on some checklist.
In truth, the effort at reducing opioid abuse seems more about reducing access, with less regard for the needs of the pain patient. Then there is the attempt by various governmental entities to make companies that sold those drugs pay the costs of social and enforcement programs designed to attend to abusers, who were prescribed the drugs by learned professionals who, we are told, were duped by pharma company sales reps. Really? Are we to believe medical professionals do not know what they prescribe?
Still, as noted by both NIDA and the FDA, engaging drug companies in helping address the issue of abuse is essential. Pain does not offer a cure (though finding a cure might not be a benefit, as investors in Gilead will note). What will matter and be the source of an investment opportunity will be those companies able to develop ADFs that meet the triple threat of abuse deterrence: oral, nasal, and intravenous. There is also the need for companies to effectively commercialize, a major barrier for the smaller companies lacking the extended value chain.
So, whether the company is big or small, the matter should be less about legal sanctions born of past practice and more of an opportunity to capture a notable share of a growing multi-billion dollar global pain med market, one that is at the tipping point with ADF drugs.
Yes, there is an investment angle in the Opioid Abuse Epidemic. But, to be rewarding it will take hard work, focus, research, and a little grit.
Disclosure: I am/we are long AGN, JNJ, PFE, TEVA, GILD, ELTP.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.