The cost of addiction paints a bleak picture. The total economic burden of prescription opioid and heroin abuse in the US has been estimated at $78.5bn annually, nearly 25% of which is shouldered by public sources (via drug rehabilitation, foster care, Medicaid costs, etc). Federal Reserve chair Janet Yellen recently said the crisis has weighed on labour force participation, particularly among working-age men, and president Donald Trump has declared it a “public health emergency”. These factors have built a heavy case for heightened scrutiny and legislative action.
While media and market attention focuses on the drug companies caught up in the legal proceedings, we believe the implications spread further. We have mapped risks and opportunities across sectors, tracked corporate responses, and spoken with companies. Given the burden of opioid addiction on the US economy and the political attention it receives, we believe there will be opportunities for companies offering solutions as well as risks to those companies implicated in its causes.
Rapid escalation
Opioids are a class of drug that includes heroin, synthetic opioids such as fentanyl, and pain relievers available legally by prescription in the US, such as oxycodone, hydrocodone, and many others. Access to legal category medications has been reduced given the problems caused by their overuse, but the problem has now spilled over into abuse of stronger and illegal opioids such as heroin. While the number of deaths from the overdose of prescribed opioids has flattened over the past few years, the number of heroin-related deaths has soared, with over 70% of heroin addiction originating from prescribed painkiller abuse.
Several actions are being taken to address the challenge, including a series of civil lawsuits (30 and rising) against five major opioid manufacturers, and a Senate Committee investigation into 10 manufacturers, three distributors and three Pharmacy Benefit Managers. The US Drug Enforcement Administration (DEA) has also lowered its manufacturing quotas for opioids in an attempt to restrict unnecessary consumption.
Beyond drug makers
Opioid manufacturers are already in cross hairs, and those companies reliant on opioids for their revenues are seeing the effects. But the issue extends more broadly, as indicated in the table below.
The new tobacco?
Parallels have been drawn between the opioid epidemic and the Big Tobacco settlements of the 1990s. In reality, there are some stark differences, not least the system by which these drugs have been prescribed, sold, distributed and insured. For example, insurance plans may have covered prescription opioids, but not other painkillers which are more expensive but less addictive. Physicians have been criticized for prescribing painkillers rather than tackling the root cause of pain.
This partly explains the varied corporate response to the crisis, with some companies tackling the issue head on and amending corporate practices, others rushing to innovate the next generation of painkiller, and still others denying their involvement or attempting to defer the blame to those that prescribe the drug. Our work to determine the strength of corporate responses is helping us navigate the investment implications of this health crisis.
Opioid infographic
Seema Suchak is a sustainable investment analyst at Schroders
