Can Drugmakers Cure the Opioid Crisis?

By Todd Campbell and Kristine Harjes Markets

Pacira Pharmaceuticals(NASDAQ: PCRX),Cara Therapeutics(NASDAQ: CARA),Nektar Therapeutics(NASDAQ: NKTR), andFlexion Therapeutics(NASDAQ: FLXN) are studying drugsthat could reduce the need to prescribeopioid pain medications. If their research pans out, it could be animportant step toward reducing the number of deaths caused annually by opioid overdose. Willthese pharmaceuticals stocks reshape how doctors treat pain?

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In this episode of the Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes is joined by Todd Campbell to explain the opioid crisis and the research that's underway at these companies.

A full transcript follows the video.

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This video was recorded on April 12, 2017.

Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today isApril 12, and this is the Healthcare edition of the show.I'm your host, Kristine Harjes,and I have healthcare specialist Todd Campbell on the line,as usual. Welcome to the show, Todd!

Todd Campbell: Hi, Kristine! How are you today?

Harjes: I'm doing great. The allergies are killing mea little bit,but that's springtime in D.C.

Campbell: I was just going to say, the winter is great for that, butI'll suffer some allergiesif I can get some warmer weather.

Harjes: Absolutely,give me sunshine and sniffles any day.

Campbell: Perfect.

Harjes: Fortoday's show,we want to address a very important topic in the world of healthcare thatI don't think we've ever really talked about, at least on a macro level, andthat is the opioid addiction crisis going on in this country right now. There are so manyAmericans out there that have procedures every year thatrequire some sort of pain medicationafterwards. There are so many people out there that needchronic pain medication. Anda lot of the time, this comes in the form of opioids,and there are all sorts of ramifications of that. They work great, butpeople can end up being very addicted to them. This is anissue that you guys have likely seen in the news,because it is becoming a more highlighted crisis. But I think the issuelargely isn't even talked about enough. Themagnitude of it is really frighteningly large.

Campbell: Tens ofmillions of people, Kristine,prescribed these drugs, orgoing through procedures where these drugs could beprescribed every year. Sadly, because of the way the brain works,the chemistry and biology of it,manyof those people will become dependent on those drugs. Sadly, we're in a position, at a point now, where more than 50 people per day are losing their livesbecause of their dependency on opioid medicines.

Harjes: Yeah. Themagnitude of this issue really can't beunderstated. According to the Department of Health and Human Services,every single day, 650,000 opioidprescriptions are dispensed; 3,900 people initiate non-medical use ofprescription opioids. Meanwhile, the number of people that are dying due to opioid overdoses is growing at alarminglyexponential rates. Opioids killed 33,000 people in 2015. That'snearly as many people as car crashes.

Campbell: Yeah. The rate of deaths due toprescription opioids has quadrupled since 1999. Even in sleepyNew Hampshire, where I sit, we're losinghundreds of people every year to this crisis.

Harjes: Exactly. So when we look at this from a perspective ofhow do we solve this,there are several different companies that are working in this spacetrying to combat the issue from different angles. We'regoing to get to them later in the show. Butthe first thing we want to talk about is toaddress some basic fundamentals of, what is pain, how do painkillers work, how does addiction happen. So let's start with some basics. What actually is pain?

Campbell: Pain ismore than when youstub your toe. You have to think about, what is the processgoing on there when you stub your toe that makes you think, "Oh my God, that hurt." AndI think it's important to recognize that'sit's a process that's designed to protect ourselves. Whathappens when we hurt ourselves is anelectrical signal gets sent from the nerves to the brain, and that causes a wholeseries of different things to happen,including the release of hormone-likechemicals that can cause tissue to swell. And thatswelling can amplify the signal; it can also cause additional pain, too. We'retalking about a signaling system that's designed to protect us when we experience things that hurt us.

Harjes: Exactly. So the way that painkillers work is,you take them, they'reabsorbed through the gastrointestinal tract, and theyattach to one of four different types ofopioid pain receptors that are in the brain. Essentially,what happens here is it reduces the pain without actually removing the cause of that pain,which makes sense, because you can't un-stub a toe. But thepoint is, these workon the brain to reduce the sensation that you have of feeling that acute sensation.

Campbell: Right. They'reattaching to those receptors on the brain cells, sowhat's happening is that'screating a biological response. Itcauses the brain to release dopamine, which is whatgets released when we do things like eat a great meal or have sex or natural biological processes, things that we findpleasurable. It's stimulating that same brain response,the same biological response. Andthat's big, because it's what drives people to want to havethat same feeling of euphoria in the future. But what happens is, the impact on those receptors degrades over time, so a higher doseof the opiate needs to be taken to be able to get that same release of dopamine.

And the other thing, Kristine, that you have to remember, too, is that itactivates another part of the brain,which is our memory part of our brain, which says, "I feel great. What is around me; why do I feel great?" So we have these associations that we makebetween people and places and things that, whenwe encounter those again in the future, it triggers something in our memory to say, "Ooh,I felt really good when I was here and I did X."I don't know if you have a favorite restaurant,but I have this one restaurant that I love to go to; itmakes a phenomenal steak, and every time I walk by that place, I'm like, "Oh my God," andI start salivating because I want to go in and have that steak. Andunfortunately,that's what's happening here. We'retargeting these important receptors of the brain that are telling our body, "This felt good when I was here and did XYZ."

Harjes: Exactly, and therein lies the problem. If you are taking a painkiller, you feel really good, and youassociate all these good feelings attached to that drug. Andthat is a very slippery surface. You wind up, as you mentioned, needing more and more of this drugto get yourself to that samepleasurable place,whether that's simply removing the pain you were feeling or feeling thateuphoria. Either way or both combined, that's something that people are wired to seek out. Andthe problem there is, even though you do, over time, develop some sort of a tolerance for the drug, and need more and more to get yourself back to that place, it doesn't necessarily diminish the bad other effects of the drug. Forexample, opioids have reallydangerous respiratory effects. If you take too much of them,you will stop breathing and you will die. That's how overdose happens. But when you develop a tolerance to the drug, it doesn't decrease thedanger of the respiratory effects; it just makes it so that you need more and more of the drug to get the other euphoria effects.

Campbell: Right,there are other parts of our brainthat are working in concert here. Ifthey see anenvironment now which is opiate dependent,they are adjusting those processes to make as if that's the new normal. Like you said,just because people have become more tolerantdoesn't mean they are becoming more tolerantto the risk of thesenegative effects. You have cardiac effects,all sorts of nasty things that come along with being opiate dependent. Even as far asthings like constipation, cardiac, like you talked about,the risk of theinability to breathe, all of these things. Yet that pull, that push and pull that's caused by the brain, because it's being triggered and saying, "Oh,this feels really good," outweighs the logic behind, "Why would I take more of thesemedicines and put myselfand my body at risk?"

Harjes: Exactly. This is a problem that's being addressed by the pharmaceutical industry, and we want to give our listeners a little taste of how different companies are approaching that.

We aregoing to dive into a handful of companies that areworking on developing alternative types of pain medication. The first one is one that wecovered in our March episode of Industry Focus: Healthcare on the show that we did about year-to-datebest performers. This one isPacira Pharmaceuticals, which,at the time, was up 56% just from Jan. 1, and now is up "only" 43%.

Campbell: Yeah. It'sbeen a very good year for this company, andpart of that is because it markets a drug that could,theoretically, reduce the likelihood of someone falling into that trap ofbecoming dependent on opiates. Kristine, how many prescriptions are being written per day for opiates?

Harjes:Six hundred fifty thousand opioid prescriptions are dispensed every single day, according to the HHS.

Campbell: OK. Let'sthink about that for a second, let'sgive our listeners a moment to digest that, andcome up with a guess in their mindshow much in dollars, what kind of a market size, do they think that be?

Harjes: Hint, hint: It's big. It's really big.

Campbell: Yeah, $12.6 billion are being spent on opiate medication every year. While that's afrightening statistic for many different reasons, I think it can't be lost that, when you have a market that's that big, and you have a potential to disrupt it bydeveloping something that's far less addictive, you'regoing to have a lot of drugmakers that are going to step up and try to come up with a solution. Pacira is one of those companies. It has a drug, Exparel,that's been on the market for a few years now. It's alocal anesthetic that isinserted at the time of a surgical procedure that has beenproven to not only reduce pain in patients, but to reduce thelikelihood of them needing opiates in theirpost-operative recovery period.

Harjes: Right. So, what makes this a novel drug is, it'sdelivered with this Depofoamapplicator that is supposed to extend the release timeso that the numbing medicine works for a longer amount of time, sohopefully you don'twind up on an opioid afterward.

Campbell: Right. Bupivacaine, which I'm sure I'm butchering, is theanalgesic, andnormally that wears off within eight hours. Butif you add Depofoam to it, you getsignificantly longer pain relief. In trials, the trials thatjustified the FDA approving this drug, you found that this drugsignificantly extended the period of time for a person to say, "I am in so much pain that I need an opiate."

Harjes: Exactly. Thiscompany now has a partnershipwithJohnson & Johnson.Hopefullythat will help boostsales of the drug even further. So far, it's doing very well. It had 11% sales growthbetween 2015 and 2016. They're forecasting another 9% at least, and that was at the low end for 2017. This company has a host ofother things they're doing, butbecause we want to stay fairly focused, we will leave them for another episode. But keep your eye out for more data. They have phase 3 data coming out in some nerve-block studies; that should be later this year. All in all,lots going on with the company as a whole, and also for this specific drug.

Campbell: Yeah, because, again, Exparel is only being used incertain patients going undercertain procedures. The idea is, if we can expand that out to a largeraddressable patient population, great, and those studies will read out data over the course of next year or so, and hopefully showsimilar results to what they saw in their firstregistration ready trial.

Harjes: Exactly. The nextcompany we want to discuss is calledCara Therapeutics. This one,I don't think we've mentioned it on Industry Focus. You cancorrect me if I'm wrong there. ButI know I mentioned it onMotley Fool Answers,if any of our listeners also listen to one of our other Motley Fool shows,on the April 4 episode, which was all about biotech investing. I mentioned it as a company thatI'm keeping my eye on that I'm excited about. This company has run up a ton this year,much like PaciraPharmaceuticals has. It seems to be really on the right track. Essentially, what it's doing is, it has this opioid compound that targets somethingcalled the kappa-opioid receptor. This isdifferent than the way that traditional opioids likemorphine work, because those target the mu-opioid receptor. Essentially, thedifference here is the drug that CaraTherapeutics is making doesn't crossthe blood-brain barrier. So it doesn't come with the side effect ofeuphoria that gives rise to abuse and addiction.

Campbell: Right. All these painkillershave to go through trials to see how likely they are to be subject to abuse. When they did this trial on this drug, CR845, they basically ended up with placebo-like reports of drug liking and feeling high andwanting to take this drug again. So you have a drug that theoretically can deliver pain relief more closely to the source of the pain -- because, again, it's targeting these -opioid receptorslocated in the periphery of the body, and it's not passing the blood-brain barrier -- so you have placebo-likeeuphoria. That's a win-win. In March, last month, they reported some data from a mid-stage trialevaluating its use in dialysis patients whosuffer from a chronic itch,which is very frustrating and painful, and affects about 70% of the 456,000 people who are ondialysis. And sure enough, it reduced painsignificantly versus placebo. They're going to sit down and talk to the FDA, figure out what their processshould be for a phase 3 trial, andhopefully we'll get some more insight intohow they plan to do that phase 3 trial within the coming months.

Harjes: Yes. So, lots going on withCara Therapeutics. I would say very worth keeping eye on. We talk about the mu-opioid receptors as compared to the kappa-antagonists. The mu ones arepretty much going to be more effective than targeting kappa every time; it's just the nature of the biology there. So CR845 probably won't ever completely replace mu receptors, butthere is a company out there calledNektar Therapeuticsthat is trying to develop a mu-opioid receptor-targeting drug thatcrosses the blood-brain barrier, but it does so slowly. The point there is to reduce the euphoria and also lessen the risk of abuse.

Campbell: Right. It's also more selective in how its targeting those mu receptors. It'stargeting more selectively; it'spassing more slowly through the blood-brain barrier. Andas a result, you're getting a similarefficacy of pain relief, but you're also gettingless of the likelihood of the euphoria. Intough-to-treat pain cases,chronic pain cases,that could be a major advantage for this company. Now, we'vealready seen a positive read-out in late-stage studies for this drug. The company itself has a history, a strategy, where it likes tolicense these drugs out to other larger players, and ithas said that it's going to beevaluating its options with this drug now. So perhaps they announce alicensing deal over the course of the coming months. Then, once that's done, maybe this drug gets filed for FDA approvalrelatively shortly thereafter.

Harjes: Right. It seems like they'reall done testing it. They have proven it's very effective,and at this point, they'rejust looking for a partner. And at that point, it will file with the FDA. When and if it gets there, we canprobably expect around a mid-teens royalty. That seems to be fairlytypical for this company. It'skind of an interesting strategy in general.I would say it probably makes the upside a little bit more contained,but it's also less risky.

Campbell: It's less risky,and it keeps the dollars flowing in for them to work on other projects they have going on.I think it's an interesting company. The stock has moved a lot since itannounced the results from itschronic-back-pain study last month.Investors have to recognize that it'smaybe not as cheap as it was four or six weeks ago. But certainly something to keep an eye on,especially given the fact that you could get some news in a not very long period of time of somebody is signing on to commercialize it.

Harjes: Yep. Last company we want to talk about today isone that calledFlexion. InDecember of last year, they filed forapproval of their drug, which is called Zilretta.

Campbell: Yeah. Zilrettais an intriguing drug, becauseit could reduce the need for both opioids andcorticosteroid shots. Ifyou suffer from osteoarthritis of the knee, you know how much pain you're under regularly because of it. Typically speaking, you start off with things like NSAIDs,so you're taking things like aspirin and ibuprofen and those types of things. Then you may advance to other types of solutions,including corticosteroid injections that are givenonce every three months. The problem with that isonce those corticosteroid injectionsoftentimes wear off relatively quickly, in a matter of weeks -- ifyou're still suffering from chronic pain, you might needother pain-relief medications, including opioids. Zilretta, in its trials, showedit could control pain for the entire three-month period. Since it's not anopioid, that istheoretically a major advantage. If you can control pain for that entire period, and remove the needto have to rely onopioids as a back-up medication, it wouldn't take a lot of patients who aresuffering from pain that requires corticosteroids to make this drug into a top seller. And, full disclosure,I happen to be long the stock myself, and a lot can go wrong from here. TheFDA could come back and say they want more studies, the FDAcould reject it. We'renot on the market yet, but this is an intriguing drug.

Harjes: And if it does end up on the market, peak sales estimates are upwards of $500 million, and perhaps could even be a blockbuster drugif the label ended up being expanded to reach some other joints. Approval should come in October. One other thing you need to mentionwhen you're talking about this drug is the potential buyoutrumors. AtThe Motley Fool, we don't believe in buying a stockjust because of the buyout rumors. But I think when you're looking at the share price of this company and trying tounderstand how much the market cap has moved lately. This is the center of that story. So,pretty much on March 23,FiercePharmareported that Flexion's board had voted to accept a buyout offer fromSanofithat would be worth more than $1 billion in cash, which has inflated this company's market cap quite a bit. Today, it's standing around $845 million. You have a whole handful of Sanofiexecutive going from Sanofi over to Flexion. Just last week, one of the top officials at Sanofi joined Flexionas the chief medical officer. So itcertainly does seem like this buyout would make sense, although,to my knowledge, neither company has commented to confirm that it actually is even being discussed.

Campbell: Right, it's all rumor and innuendo right now. You'redrawing lines between some dots.Who knows what ends up happening? Obviously, there's a lot of activity in this space; that means there's a lot of options that Sanofi could be considering. Don't buy a stock, any stock, this stock,based upon the potential for a suitor to come and pony up some money to buy. Instead,look at all of these companies on the basis of, can they displace the use ofopioids and help reduce the risk of dependency and potential deaths?

Harjes: Exactly. Youpretty much did my disclosure for me. Thanks, Todd. That does wrap up our show fortoday. Hopefully we were able to give you a better understanding of this market andsome of the ways that companies areapproaching in novel ways to try to reduce dependence onopioids and combatwhat is a truly devastating crisis.

Asalways, people on the programmay have interestsin the stocks that they talk about,and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. For Todd Campbell, I'm Kristine Harjes. Thanks for listening, and Fool on!

Kristine Harjes owns shares of Johnson & Johnson. Todd Campbell has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool has a disclosure policy.