(Updates story originally published June 20 to add that Heron Therapeutics reported positive FDA results Thursday.)
While investors are focused on trade wars as a potential threat to their wealth, drug abuse may be the bigger risk. Fortunately, three biotech companies are coming to the rescue, which makes them good investments.
If all of this sounds farfetched, let’s follow the logic.
Joblessness is now so low at 3.8%, it’s well under the level the Federal Reserve considers the “natural rate of unemployment,” or 4.6%.
This means companies have to pay more to attract workers. That can boost consumer spending and prices. Higher inflation would have the Fed getting more aggressive on interest-rate increases. That’s the No. 1 bull-market killer.
So where do drugs come in?
One reason the job market is so tight is that a lot of people have dropped out. For people over 16, the labor force participation rate is 62.7%. That is well below the 66%-67% level during the 2000s before the financial crisis.
True, a lot of this is because the population is aging. Older people stop working. But strip out the seniors and the trend remains. For people 25-54 years old, the participation rate is 81.9% vs. 84.4% in the late 1990s.
Why is this? Experts at the Organization for Economic Cooperation and Development blame it on drugs, particularly opioids. Princeton University economist Alan Krueger thinks opioid painkillers may have caused at least a fifth of the decline in workforce participation among people age 25-54.
This make sense, when you consider some big-picture drug-abuse numbers.
• About 2.1 million people in the U.S. suffer from opioid abuse.
• Over 42,000 people died from opioid-related causes in 2016. Since this time yesterday, over 100 people in the U.S. died after overdosing on opioids like prescription pain relievers, heroin and fentanyl.
• Prescription opioid abuse costs the U.S. $78 billion a year in health-care treatment and lost productivity, says the Centers for Disease Control and Prevention. The other numbers above come from the U.S. Centers for Disease Control and the National Institute on Drug Abuse.
Biotech to the rescue
Wouldn’t it be nice if biotech companies were doing something about this? They are. Here are three biotech companies with drugs in the works, or on the market, that could manage down opioid abuse. They presented on this theme at the Jefferies 2018 Global Healthcare Conference in New York earlier this month.
Although all of these have done well since I suggested them in my stock newsletter, Brush Up on Stocks, in the past few years, they’re good investments still since they all offer potential solutions to a growing health care crisis in the U.S. likely to get more attention and government funding.
Heron Therapeutics (TICKER:HRTX)
One way to keep people from getting addicted to opioids is to keep them away from opioids in the first place. “The use of opioids after surgery for pain control is a very important gateway for addiction and chronic use of opioids,” said Heron Therapeutics CEO Barry Quart at his Jefferies conference presentation. He estimates 2.6 million people a year take opioids to manage pain after surgery and over 400,000 get addicted.
What’s more, about a billion opioid pills find their way into medicine cabinets per year as a result, he says. That’s where other people find them and get hooked. Quart says a third of opioid addicts report their first opioid exposure was through leftover pills.
“The goal is to have as much opioid-free pain control after surgery as possible,” says Quart. He thinks his company has a solution, and that it has a “very large market opportunity” ahead as a result.
Code named HTX-011, his company’s drug is a mix of the painkiller bupivacaine, an anti-inflammatory called meloxicam, and a polymer blend which brings in the added twist of three-day time release.
One version of this drug has passed Phase III tests. It reduced pain and helped keep people off opioids after surgery. Results on Phase II tests of another variation of this drug were released Thursday. HTX-011 achieved the primary endpoints in both studies, the company said.
Quart says his company will file a new drug application with the Food and Drug Administration in the second half of this year, another potential catalyst.
Heron Therapeutics has two products on market for chemotherapy-related nausea and vomiting, called Sustol and Cinvanti. Those drugs block chemicals in the body that cause nausea and vomiting during chemotherapy.
Heron Therapeutics stock was up by 33% to $40.90 Thursday. I first suggested it at $12 in my stock letter in January 2017. The 200-plus percent gain in the share price compares with 58% for the SPDR S&P Biotech exchange traded fund
XBI, -0.86%
23% for the iShares Nasdaq Biotechnology ETF
IBB, -0.71%
and 21% for the S&P 500
SPX, -0.30%
Cara Therapeutics (TICKER:CARA)
Like Heron, Cara Therapeutics thinks it has an effective painkiller that won’t lead to addiction. Its drug doesn’t penetrate the brain and doesn’t cause euphoria. The drug, code named CR845, is a “kappa opioid receptor agonist.” This just means that it’s a nerve-dampening drug that messes with opioid receptors in the body in a way that reduces pain.
The drug is being developed as an intravenous painkiller for use after surgery. It’s in Phase III trials. Data from this study should come out sometime this month, and they could move the stock. An oral formulation for chronic pain has completed one stage of Phase II testing.
The drug is also being tested for use against a severe form of itching associated with kidney disease and dialysis, called pruritus. About half of dialysis patients suffer from this. Here, the company has a business partnership with Vifor Fresenius Medical Care Renal Pharma, a large dialysis company. Both pain and itching sensations travel along the same nerve pathways, so the drug can be effective against both. The drug will probably also be used against other kinds of severe itching and psoriasis.
At recent prices of $17, Cara Therapeutics stock is a “three-bagger” since I last reiterated it in my stock letter at $5 in March 2016. I first suggested it at $13 in February 2014.
Alkermes (TICKER:ALKS)
Alkermes is developing several drugs to treat mental illness, but it already has two big ones on the market. One, called Vivitrol, treats alcohol dependence and prevents opioid abuse relapse. Like Heron Therapeutics’ drug, Vivitrol contains a polymer blend that creates extended release of the active ingredient. Patients get a shot every four weeks. Vivitrol prevents relapse into opioid abuse by blocking opioid receptors. Patients first have to go through a week or so of detox and be opioid-free.
Sales growth may depend on a bigger government push to reduce opioid dependence, for a simple reason.
“A lot of people who are dependant don’t have insurance or the means and often, sadly, they burn bridges with family,” Alkermes CFO James Frates said at the Jefferies conference. This means growth in the use of Vivitrol against opioid abuse may require new drug-treatment policies and federal funding. “As we get more people into treatment, we think there is an important role for Vivitrol to play,” says Frates.
President Donald Trump seems to be on board. Last October, he declared the opioid epidemic a public health emergency. “We are currently dealing with the worst drug crisis in American history,” he said at the time. “Addressing it will require all of our effort.” Trump often drops the ball on initiatives, but if he follows through, it could be a positive for Alkermes.
I first suggested Alkermes in my stock letter on March 1, 2016, in the low-$32 range and, at $51, it is up 59% since then, compared with 40% for the S&P 500. But it still looks like a buy given the potential for Vivitrol and other drugs in development.
At the time of publication, Michael Brush held shares of ALKS. Brush has suggested HRTX, CARA and ALKS in his stock newsletter, Brush Up on Stocks. Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist Group, and he attended Columbia Business School in the Knight-Bagehot program.
Source : MTV
