Betting Against Opioids: Investing in Healthcare vs Big Pharma

Dear Retail Investor,

I’ve got a 91-year-old father who means the world to me.

And I’ve devoted this summer to spending some quality time with him. 

So I sublet my apartment in California and rented an Airbnb in the town of Bainbridge, Ohio, a few miles from where my dad lives.

I figured we’d spend the summer going on walks together… play a little golf… maybe even take a few mini-road trips.

None of that’s happened.

The reason?

Dad’s suffering from severe low back pain – everything he does hurts.

Now he can’t even leave the house without a walker.

Doctors haven’t been able to do much for him, other than prescribe painkillers and cortisone injections.

All that’s helped a little, but he’s still miserable.

My dad’s one of 50+ million Americans who suffer from chronic pain

That 50+ million stat comes from a 2019 study by Brigham and Women’s Hospital.

It also says chronic pain’s costing the American economy over $300 billion a year in lost productivity.

It’s also fueling America’s opioid crisis…

I’m sure you’ve heard about that.

To say it’s a problem would be an understatement.

According to the National Institute on Drug Abuse (NIDA), roughly 21% to 29% of people who have been prescribed opiates for their chronic pain misused them.

Worse, between 8% and 12% of people on opioids for chronic pain develop an “opioid use disorder.”

In other words, they become addicted to them.

My dad’s on one of these opioids – a powerful painkiller called OxyContin

When doctors first prescribed it to him, they only gave him enough for five days.

Turns out he needed more, so they issued him another two weeks’ worth.

But he had to wait a week for that second prescription (he was none too happy about that).

Why did they make him wait?

Because doctors are very careful in prescribing opioids like OxyContin these days.

Too bad they weren’t more careful years ago…

Over-prescribing opioids in the 1990s laid the groundwork for our opioid crisis

Opioid addiction is nothing new in the U.S.

But in the past, it didn’t have the horrible impact it’s having now.

In 2017, more than 47,000 Americans died from an opioid overdose.

That same year, about 1.7 million Americans suffered from substance abuse disorders related to prescription opioids.

Decades before, they were generally restricted for pain relief after surgery or for people with terminal conditions. 

It doesn’t take a genius to understand why opioids were restricted so much.

They’re highly addictive!

So what the hell happened to ignite the opioid crisis?

Somehow the medical profession got the crazy idea that opioids might not be all that addictive…

… So long as they were taken under a doctor’s supervision.

How the medical profession came to embrace opioids for chronic pain

A 1980 letter to the editor in the New England Journal of Medicine (NEJM) got the ball rolling.

That letter cited a report of nearly 12,000 patients who had been prescribed opioids.

The letter said that out of all those people, only four became addicted.

Yet this letter provided no evidence to back up that claim.

Then a widely cited 1986 study involving just 38 people advocated using opioids to treat chronic pain not related to cancer.

That study and the NEJM letter helped launch the idea that it was okay to prescribe opioids to people with chronic pain.

After all, these people weren’t city rat drug addicts, right?

With that perception taking root, doctors ramped up opioid prescriptions for chronic pain

Then in the mid-1990s, drug companies introduced powerful new opioid-based products.

These included OxyContin – a sustained release formulation of a decades-old medication called oxycodone.

Privately held Purdue Pharmaceuticals created this drug and marketed it heavily.

Other drug companies began concocting their own opioids for chronic pain.

They all lobbied lawmakers…

Sponsored continuing medical education courses…

Funded professional and patient organizations…

Sent representatives to visit regular doctors…

In short, they launched an expansive blitzkrieg that touted prescription opioids as safe, effective pain relievers with a low potential for addiction.

That made opioid prescriptions even more widespread.

But drug companies omitted two important bits of information about long-term opioid use

The first – using opioids for a prolonged period can result in addiction.

(Being a patient with a doctor’s prescription doesn’t make you immune from this fact.)

Second, they can make you even more sensitive to pain if you take them for too long.

Consider OxyContin.

Purdue knew it was addictive, and admitted as much in a 2007 lawsuit.

That resulted in a $635 million fine and thousands of lawsuits against the company, which paved the way for its 2019 bankruptcy filing. 

This is far from the first time that a drug company has been fined for fraud

GlaxoSmithKline (NYSE: GSK) agreed to settle a $3 billion lawsuit in 2012 for failing to report safety data to the FDA about a diabetes drug (Avandia)…

… As well as for promoting two antidepressant drugs for unapproved uses  (Paxil and Wellbutrin).

These aren’t the first settlements the company has agreed to.

In fact, the company has paid nearly $10 billion in financial penalties from 2003 through 2016.

That’s the most of any drug company.

But GSK is hardly alone in committing health care fraud.

In 2015, Takeda Pharmaceuticals (NYSE: TAK) agreed to a $2.4 billion settlement over the cancer risks of its anti-diabetes drug, Actos…

Pfizer (NYSE: PFE) settled for $2.3 billion in 2009 for its now-withdrawn Bextra pain medicine… 

Johnson and Johnson (NYSE: JNJ) in 2013 agreed to pay $2.2 billion for promoting its antipsychotic drug Risperda for unapproved uses…

All together, 26 drug companies have settled lawsuits to the tune of $33 billion from 2003 through 2016.

You’d think $33 billion in penalties would make drug companies more honest about their wares.

But I’m afraid they just see these fines as a necessary cost of doing business.

That’s why I won’t invest in major drug companies

Yet I still like the idea of investing in health care.

With the ranks of ailing Baby Boomers growing by the day, the sector is destined to grow.

But instead of Big Pharma, I prefer betting on firms helping people get over chronic pain without the aid of dangerous drugs.

I’m talking about chronic pain management companies.

As for what pain management companies to invest in, think small-cap.

The reason’s simple – small caps give you the best shot at making outsized gains no matter what sector they’re in.

The chronic pain management industry’s no different.

There are several interesting small cap companies in this space worth considering.

One’s ATI Physical Therapy (NYSE: ATIP), an $835 million outpatient physical therapy provider with 882 clinics throughout the U.S.

There’s also U.S. Physical Therapy (NYSE: USPH), a $1.4 billion company operating 544 outpatient therapy clinics in 39 states.

If you’re willing to bet on a longer shot, I think MEDIROM Healthcare Technologies (Nasdaq: MRM) is worth a look.

That tiny, thinly traded company – with a market cap of just $33.5 million – has 301 clinics throughout Japan.

I’ll close this missive by saying my dad started going to a physical therapist about a week ago.

And he’s definitely improving (he can even move around the house without a walker now).

Bottom line – two visits to a physical therapist have done more to relieve his pain than a month’s work of OxyContin.

That kind of says it all, doesn’t it?

That’s all I have for today.

Until next time,

Doug Fogel
Contributing Editor, Dear Retail

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