Last week, President Trump made it clear that he is going to take an aggressive stance against the “crippling problem” of opioid drug abuse in the United States. During a White House listening session, Trump reiterated new statistics which show that overdoses are now the leading cause of accidental deaths in the country, with opioid overdose deaths quadrupling since 1999.
According to President Trump, this “epidemic” has become one of the largest under-the-radar social problems in the country, and an issue that both state and federal legislators have been slow to address. Having Trump against them may not be in the best interest of the large pharmaceutical companies, because like Obama, Trump has shown a genuine willingness to issue executive orders to get his way. Knowing that Trump has made this a high-profile issue, along with VP Pence making a strong speech last week, it’s all but guaranteed the administration would move quickly to curb the current ease of abuse. Also, for those who doubt the resolve of Trump to get some legislation passed to stifle the abuse epidemic, he has placed no-nonsense New Jersey Gov. Chris Christie to serve as chairman of the commission, who is intent on changing the way the multi-billion dollar opioid market operates. The motive is well-placed, and actions designed to curb abuse may happen sooner than many think.
For investors, picking sides in this pending regulatory fight may be a rational consideration. While the powerful pharmaceutical industry may use its financial muscle to fight back any disadvantageous legislation, it may be wise for investors to focus on smaller drug companies that are well into the process of delivering abuse-deterrent compounds to market. Lobbyists may be able to buy congressional votes, but they can’t pay a large enough price to stop Trump from signing an executive order.
For investors, options are already in place, with companies like Teva Pharmaceuticals (TEVA), Intellipharmaceutics (IPCI), and Pernix Therapeutics (PTX) being well positioned to capitalize on their current and potential market opportunities.
Teva (TEVA) Gets Approval For Vantrela ER
In January of 2017, TEVA received FDA approval for its abuse-deterrent hydrocodone formulation Vantrela. Indicated for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment, Vantrela provides an option when other treatments have proved to be inadequate.
Supported by Vantrela’s clinical program, Teva’s studies evaluated safety, efficacy, and the quality of its abuse deterrent compounds in laboratory-based in-vitro manipulation and extraction studies, pharmacokinetic, and clinical abuse potential studies. Teva produced impressive results with Vantrela, with properties that alter the chemistry of the drug when manipulated by a user in such a way that could potentially contribute to oral, nasal, or intravenous abuse.
Rob Koremans, MD, President and CEO of Global Specialty Medicines at Teva stated, “Teva understands the risk of prescription drug abuse is a challenge healthcare professionals face when treating millions of Americans affected by chronic pain,” He added, “Abuse-deterrent treatments provide options for prescribers that may help deter or mitigate abuse while still preserving access to pain medications for the patients that need them most.”
TEVA is a large ship to move, with a market cap of just over $32.8 billion as of Monday’s close. The stock is currently trading at $32.21 a share, down just under 40% from its 52-week high. TEVA has the might to fend off competitors, but there is plenty of business to go around, and driving prescription rates higher will become a matter of marketing prowess. Investors have not embraced TEVA during the past year, and while Vantrela ER holds the potential to grab a significant share of the market, they certainly do not have the ability to corner the market and preclude the next two players from gaining significant share in the sector.
Intellipharmaceutics(IPCI) And Rexista
IPCI is working to bring its abuse-deterrent drug Rexista to market. The company successfully filed its NDA in November of 2016, had the filing accepted by the FDA in February of 2017, and now sits with a PDUFA target action date of September 25, 2017.
Different than what both Teva and Pernix offer, Rexista acts as an abuse and alcohol-deterrent, controlled-release oral formulation of oxycodone hydrochloride for the relief of pain. Data suggests that Rexista may provide additional differentiating features from its competitors.
Rexista is a new drug candidate, with a unique long acting oral formulation of oxycodone intended to treat moderate to severe pain.
Like TEVA and Pernix(PTX) products, prescribing Rexista is necessary when a continuous, around the clock opioid analgesic is needed for an extended period. The IPCI formulation is intended to present a significant barrier to tampering when subjected to various forms of physical and chemical manipulation commonly used by abusers.
According to IPCI, “the drug is designed to prevent dose dumping when inadvertently co-administered with alcohol. Dose dumping is the rapid release of an active ingredient from a controlled-release drug into the bloodstream, which can result in increased toxicity, side effects, and a loss of efficacy. Dose dumping can result by consuming the drug through crushing, taking with alcohol, extracting with other beverages, vaporizing or injecting.
Also, when crushed or pulverized and hydrated, the proposed extended release formulation is designed to coagulate instantaneously and entrap the drug in a viscous hydrogel, which is intended to prevent syringing, injecting and snorting. Our Rexista formulation is difficult to abuse through the application of heat or an open flame, making it difficult to inhale the active ingredient through combustion methods.
Rexista also contains a blue dye that is emitted once the tablet is tampered with or crushed. This stigmatizing blue dye may act as a deterrent if abused orally or via the intra-nasal route, and may also serve as an early warning mechanism to flag potential misuse or abuse.”
With a host of distinguishing abuse-deterrent properties, coupled with the ability for the drug to work independent of the requirement of food intake, IPCI may be dressed well for a potential partnership.
IPCI closed on Monday at $2.45 a share, down about 25% from its 52-week high. Although the market has provided IPCI with brief moments of momentum, the stock has been unable to sustain its footing beyond the $3.00 level. Investors may rightfully acknowledge the need for either IPCI to raise capital or to enter into a strategic partnership that can exploit the potential for Rexista. Investors should keep in mind, though, that IPCI has multiple shots on goal, having partnerships with large pharmaceuticals in place to drive business for other drugs, complimenting a growing revenue stream.
All things considered, IPCI management is well aware of the stakes in having a successful launch for Rexista. Assuming the drug is approved, which is seen as likely based on the past communication between the company and the FDA, focusing on bringing together a partnership can alleviate doubt from investors’ minds about the company’s ability to successfully market Rexista. Eliminating the financial concern is important, and until that overhang subsides, pressure may continue to weigh on the stock. However, at current levels, approval in the coming months will certainly add value to the shares, potentially making IPCI a high percentage gainer as the PDUFA date approaches.
Pernix Therapeutics'(PTX) Zohydro ER
For biotech investors, PTX needs little introduction. Beaten every which way but loose, PTX continues to get back up to face its doubters. PTX has Zohydro ER already being marketed in the United States and has been generating notable growth in prescription rates for the drug. In February, PTX settled litigation that applied pressure on the stock, receiving a favorable opinion related to its patent strength for the drug. The company prevailed against Actavis’ proposed generic version of Zohydro, leading to the court enjoining Activis from producing, marketing, or making available for sale its generic compound. The decision paves the way for PTX to advance Zohydro, unimpeded from a generic threat.
On January 30, 2015, the FDA approved an updated formulation of Zohydro that features BeadTek technology. From the PTX description, the formulation encompasses an indistinguishable mix of inactive beads, active immediate-release hydrocodone beads, and active extended-release hydrocodone beads. Zohydro ER with BeadTek delivers an extended release of hydrocodone that provides 12-hour dose duration. When taken as directed, the inactive beads contained in Zohydro ER with BeadTek remain inert. The inactive beads dissolve independently of the active hydrocodone beads and are designed not to change the 12-hour release properties of the medication when taken as directed. However, when crushed and dissolved in liquids or solvents, the inactive beads are designed to immediately form a viscous gel.
While PTX faces an uphill battle on proving investors wrong, there is still substantial value that has remained unappreciated. Although growing relatively slow, Zohydro has, in fact, been gaining momentum in prescription volume during the past three-quarters. The company completed a reverse split in 2017 and maintained access to capital to fend off potential vultures that would like to carve PTX into pieces and profit from its parts. Furthermore, PTX may have the ability to fight back with both a small share float and the capacity to raise capital at current levels that would be ample in defending itself from unsolicited attack.
Management has done a good job protecting shareholders, and its recent battle against creditors is a testament to the resolve of their leadership in making PTX a commercially viable company. The stock has a tendency to trade in a range of $3.50 – $4.50, and positive news may serve as an ignition switch to much higher levels. On Monday, PTX shares closed the day at $3.65.
Investors, myself included, see both value and potential in PTX in the near and long term. Management has stated publicly on several occasions that they are actively looking for potential accretive partnerships, and the likelihood that one may emerge due to the strong position being taken by the Trump administration may help to facilitate a deal.
Trump Against The Machine
Investors in large cap pharma should not take the Trump position on curbing opioid abuse lightly. The industry is a mega billion dollar opportunity, and large pharma is not going to forgo profits made from the need for pain medications to prove a point. The path of least resistance for any large pharma is to scoop up the companies, either by partnership or acquisition and to eliminate the lengthy process of trying to get an abuse-deterrent compound approved through sponsored clinical trials, which can take over a decade.
Rather than bet against any of the three stocks mentioned in this article, investors may be wise to evaluate the potential in each of them and recognize that the opportunity exists for each of them to attract attention from large manufacturers that must soon consider a hedge to protect their market share.
As for addressing the opioid epidemic in the United States, it’s a matter of when, not if, this administration is going to take action. While each of the stocks covered can be volatile regarding price swings, both IPCI and PTX may offer the better of the three returns. That’s not to say that TEVA will not be a prime beneficiary of the move in the abuse-deterrent market, it’s just that I see IPCI and PTX as greater laggers in valuation, thus standing a greater chance for substantial appreciation.
Additional Disclosure: I am long IPCI, PTX and may purchase additional shares within the next 72 hours.
This article was originally featured on CNA Finance