Investing in solutions for the opioid epidemic

The opioid epidemic is a major issue that has taken hold across the United States, developing over recent decades into a public health crisis. For a number of years, we have been researching and investing in companies at the forefront of solutions to this growing epidemic. Political pressure and public awareness are continuing to ramp, and we believe our healthcare system will finally be compelled to adopt new solutions in pain management that are less addictive and abuse deterrent. As we outline below, the opportunity set is meaningful and wide-ranging, and we think it is well suited to our thematic approach to small- and mid-cap growth stock investing.

Breadth of the epidemic: Something has to change

According to the Centers for Disease Control and Prevention (CDC), more than 6 of every 10 drug overdose deaths today involve an opioid, and the number of opioid deaths has quadrupled since 1999. In 2015 alone, deaths from opioid-related overdoses in the US reached 33,000, up 15.5% from the year before. Overdose deaths have indeed reached crisis proportions, and they are now nearly equal to the number of annual fatalities from car accidents. Alongside this surge in overdoses (see chart below), the amount of prescription opioids sold in the US since 1999 has also nearly quadrupled. Furthermore, data collected over the last several years indicate there is growing evidence of a relationship between increased nonmedical use of opioids and heroin abuse.

Overdose deaths involving opioids, US, 2000–2016

Overdose deaths involving opioids, US, 2000-2016

Source: Centers for Disease Control and Prevention (CDC) / National Center for Health Statistics (NCHS), National Vital Statistics System, mortality. US Department of Health and Human Services, CDC, 2016. Hedegaard H, Warner M, Miniño AM. Drug overdose deaths in the United States, 1999–2016. NCHS Data Brief, no 294. Hyattsville, MD: National Center for Health Statistics. 2017/ CDC. Wide-ranging online data for epidemiologic research (WONDER). Atlanta, GA: CDC, National Center for Health Statistics; 2016. Available at

No demographics are spared from the epidemic — we have seen dramatic increases in opioid abuse regardless of gender, age, ethnicity, and income level. Simply stated, America has an opioid problem and people are dying at an alarming rate because of it.

Looking at opioids and potential opioid solutions

Opioids are substances that work in the body’s central nervous system, or specific receptors in the brain, to reduce the intensity of pain. Pain is not a small problem for Americans. According to a 2011 report from the National Academy of Sciences’ Institute of Medicine, more than 100 million suffer from it, more than those with heart disease, diabetes, and cancer combined. Roughly 10 million people have what can be described as chronic or persistent around-the-clock pain, while the balance have short-term pain that can stem from injuries, disease, or medical procedures.

Patients need solutions for pain. However, it can be argued that the practices to treat pain in the US have caused more public harm than good. We are investing in the companies that provide alternative solutions with less possibility for addiction.

How did the opioid crisis evolve?

In the mid-1990s, the American Pain Society sought to raise awareness of the fact that patients suffering from pain were often undertreated. This was because pain was not regularly assessed during physician office visits or even in hospital stays following traumatic procedures. It became widely accepted that pain was a subjective measure and that doctors should respect patient self-reporting on the presence and severity of pain. Simultaneously, drug manufacturers actively promoted new, potent versions of decades-old opioid narcotics to treat pain. The healthcare system overall became more inclusive of the widespread use of this powerful class of drugs, with less attention paid to the potential long-term consequences. Fast forward to today, and medications that are often not used as directed can lead to accidental overdose and potentially death.

It’s clear that the system needs to change — and when these types of changes start evolving in large markets, then investment opportunities also can arise.

What regulatory action is being taken?

It’s important to note that the change is beginning to occur as America tries to fight back, and as regulators and the industry start to address the crisis. For example, in May 2017 when Dr. Scott Gottlieb was appointed the new commissioner of the Food and Drug Administration (FDA), he quickly made the opioid epidemic a priority for the agency. In a show of resolve, he issued a stern request to one particular drug maker to stop selling a long-acting opioid painkiller. Dr. Gottlieb also called for a public workshop for physicians to discuss how abusers tamper with opioid products and what can be done to curb this behavior.

On a more local level, we have seen nearly every state implement initiatives to crack down on prescription opioid abuse, including creating drug monitoring programs and stepping up efforts to prosecute individuals and organizations involved in the unlawful distribution of opioid narcotics. Overall, we expect regulatory efforts such as these to continue for years to come, and we will monitor their implications for companies that we include in our research coverage. For example, we expect to see support for companies that bring to market non-opioid options for pain management.

What are the alternatives?

There needs to be continued development and broader use of safer opioids. Opioids are likely to remain the gold standard for treating chronic pain because of their effectiveness. However, the science is in place for pharmaceutical companies to develop “safer” opioid products, designed to make tampering much more difficult for abusers. This scientific progress is part of the activity we monitor as we conduct research and form opinions about products likely to show particular promise.

One of the companies that we feel has the best abuse-deterrent opioid on the market is Collegium Pharmaceuticals with its product Xtampza. While Collegium’s scripts have been ramping in recent months, they are still a small percentage of total opioid prescriptions. We think the uptake will continue to increase over the next several years as public awareness and scrutiny of the healthcare system migrates toward abuse-deterrent solutions.

Second, we think it would be sensible to have more awareness of alternative approaches for treating postsurgical pain. As noted above, many people who develop longer-term addiction to opioids are first exposed following a surgical procedure. Most surgeries involve some level of postoperative pain, but there are pharmaceutical options that can bridge patients back to their normal lives without, or with limited use of, opioids.

For example, we are monitoring developments in alternative options such as longer-acting versions of non-opioid pain relievers (including channel blockers or nonsteroidal anti-inflammatory drugs) that can stretch pain relief across multiple days with only one administration. One of the companies providing these solutions is Pacira Pharmaceuticals. Usage of its non-opioid pain reliever, Exparel, has been growing but it still is used in a small percentage of overall surgical procedures. We seek to identify treatments that achieve a high rate of positive outcomes that can be administered widely across the population.

Focused on alternative treatments

As investors, we are focused on companies providing alternative treatments to traditional opioids. This includes new options that have been found to deter abuse and result in lower rates of addiction. We believe there is strong potential for therapeutic advances to continue into the coming years, and that we are in the early stages of what could be a period of notable growth in this area of medicine. This growth will not only provide a compelling opportunity for investment, but it could also significantly curtail one of America’s most harmful public health threats.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

Holdings discussed (held in certain portfolios managed by the team, in amounts up to, as of Dec. 29, 2017, for Collegium Pharmaceuticals: Small/Mid-Cap Growth Equity, 2.92%; Small-Cap Growth Equity, 5.47%; and for Pacira Pharmaceuticals: Small/Mid-Cap Growth Equity, 5.37%; Small-Cap Growth Equity, 5.44%; Mid-Cap Growth Equity, 5.05%; Small-Cap Growth Long/Short, 2.67%) are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.

The views expressed represent the Manager's assessment of the market environment as of January 2018, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and their summary prospectuses, which may be obtained by visiting or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.


Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.


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