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The Food and Drug Administration is cracking down on sales of some pain relievers. Ouch.
Adding insult to injury, the agency expects the companies to pay for the program that will curb their sales. Double ouch.
On Monday, the FDA announced plans to put a Risk Evaluation and Mitigation Strategy in place for all long-acting opioid pain relievers. The REMS will get doctors trained in the proper use of the pain relievers, which are often mis-prescribed and abused. The long-acting painkillers are especially an issue because they contain more active ingredient per tablet, which is released slowly over time. Drug abusers try to bypass the slow-release by crushing them and through other methods.
The FDA expects companies to train at least 60% of the doctors who prescribe the pain relievers in their appropriate use within three years of the start of the program. The added cost of running the training won't be insignificant, but shouldn't be that bad. The bigger issue is that if the training is effective, it'll reduce prescriptions, cutting into revenue.
Fortunately, most of the companies in question aren't all that dependent on their long-acting opioid drugs, so any decreases in revenue shouldn't affect valuations all that much. For example, Avinza and Embeda, which are sold by Pfizer (NYSE: PFE ) , and Johnson & Johnson's (NYSE: JNJ ) Duragesic and Nucynta ER are on the list of drugs covered by the REMS. Even a 50% drop in sales, which seems extreme, wouldn't break either large pharma. Endo Health Solutions (Nasdaq: ENDP ) is the smallest public company on the U.S. exchanges I spotted on the list of drugs covered, but even its Opana ER is just one of multiple drugs Endo sells.
A few companies have developed abuse-resistant versions of long-acting opioids. If the companies play their cards right, drugs such as Pfizer's Oxecta, which is an immediate-release drug, and Endo's Opana ER, might actually see their sales go up as doctors are further enlightened about the potential for abuse. The biggest losers might be generic-drug makers, such as Mylan (Nasdaq: MYL ) and Novartis (NYSE: NVS ) , which sell copycats of older versions of drugs that don't have tamper-resistant features.