“The Opioid Abuse Epidemic: What’s the Investment Angle”

 

I was captivated by this article published in June of last summer. It really nails the opioid “crisis”, lock, stock and barrel. I have pasted it below. I think it is worth a read, though it’s long.

When I say “nails it”, I mean that this is what we as patients are dealing with. People are viewing our situation as an enterprise to gain something from. The unique quality of this gentleman is that he took the time to actually understand the impetus and the actual truth of what was going on!

This was written by Strategy Doc and posted on June 26, 2017.

The Opioid Abuse Epidemic: What’s The Investment Angle?

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 aged 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 [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 to 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), AmerisourceBergen (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 [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 is 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 suggests 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 include 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.

 

Written by Strategy Doc at Seekibg Alpha

https://seekingalpha.com/article/4084042-opioid-abuse-epidemic-investment-angle