Standard Life Investments

Focused Insight

The cost of opioid abuse in America – it’s complicated

  • An opioid epidemic is ravaging communities and taking a financial toll on the economy
  • Investors need to engage with companies producing opioids and those offering treatments
  • Stewardship means actively encouraging companies to tackle this issue

Opioids can be highly addictive: both prescription pain relievers such as oxycodone and morphine and illegally-obtained opioids such as heroin. Across the US, 175 people are dying1 from opioid overdose daily.

Opioid addiction is escalating, prompting President Donald Trump to declare the epidemic a public health emergency. The crisis cuts across all strata of society and has ravaged communities. It has also taken a financial toll on the economy.

Indeed, the scale of the problem means that investors cannot afford to ignore the consequences. And, as stewards of our investors’ assets, portfolio managers have a duty not only to understand the risks that this epidemic brings, but also to use their influence to encourage pharmaceutical companies to act in the best interests of their customers.

 

Figure 1: Overdose deaths involving opioids, by type of opioids, United States, 2000-2016

Chart 1: GDP per captia of Argentian, % of US

Source: Drug overdose death data, Centers for Disease Control and Prevention

 

Counting the cost to the economy

The economic burden of opioid abuse in America is estimated to be $78.5 billion a year. The majority of the costs are met by the public purse, according to a report2 in the Journal of Medical Care. These figures are continuing to escalate, with profound long-term economic implications.

Already, greater attention is being given to opioid business risk and the potential impact on labour force participation and productivity. In 2014, 27 million Americans aged 12 or older in the US were current users of illicit drugs3, according to the Substance Abuse and Mental Health Services Administration. Typically, the working age population is defined as those aged 15 to 64.

President Trump has urged creativity in fighting the opioid crisis, suggesting using ‘really tough, really big, really great advertising’ to teach young Americans not to start doing drugs. Still, his administration has yet to set aside new funding to target rising opioid use. This epidemic needs to be tackled on all fronts, including by regulators, distributors, pharmaceutical companies, point-of-care providers, users and investors.

Counting the cost to companies

There are also growing concerns that opioid company business risks can threaten shareholder value. The Trump administration’s Commission on Combating Drug Addiction and Opioid Crisis has engaged with the pharmaceutical industry and other stakeholders to consider the development of nonaddictive pain-relief medication. In a November 2017 report4, the Commission offered 56 strategies to fight the crisis, including increased federal funding, additional prevention programmes and new law enforcement strategies to reduce opioid supply.

Making a move that may help reduce opioid misuse, insurer Cigna will drop coverage for oxycodone5 in its group health plans starting from January 2018. Individual states and regulators have also acted, spurred by the US Food and Drug Administration’s request in June that Endo Pharmaceuticals remove an opioid medication6 from the market.

A US court ruled recently that a generic form of Indivior’s Suboxone film, an opioid addiction treatment, does not infringe on the British pharmaceutical firm’s patents, some of which will not expire until 2024.

A growing number of US jurisdictions have filed law suits against opioid producers and distributors, citing negligence by various companies. Companies facing legal action include Allergan, Endo, Johnson & Johnson and Cardinal Health.

For pharmaceutical companies, adopting abuse-deterrent properties for their products, such as antitamper technology and improved product labeling, may be an increasingly worthwhile investment.

Effective stewardship – a role for investors

Investors for Opioid Accountability is a coalition of 30 treasurers, asset managers, faith-based, public and labour funds with over $1.3 trillion in assets. It is filing multiple shareholder proposals on board oversight of business risks related to opioids at various opioid distributor and manufacturer companies.

Opioid addiction is a social tragedy. For investors, its economic consequences cannot be ignored. Investors need to use their influence to encourage companies to adopt best-practice social and governance standards. Acting in the best interest of society ultimately protects and enhances the value of clients’ investments. This means not only understanding the financial implications of this crisis, but also encouraging companies to strengthen their opioid risk management programmes.

As investors, Standard Life Investments is engaging with investee companies that produce and distribute opioids. We encourage companies to consider:

  • the rising cost of opioid overdose and long-term recovery treatments
  • monitoring size of orders, educating users and prescribers, and developing anti-tamper medicines
  • ensuring board oversight of opioid sales.

1 ‘Provisional counts of drug overdose deaths’, Centers for Disease Control and Prevention, 6 Aug. 2017
2 ‘So Prescription Opioid Disorders are a $78.5 Billion Problem’ by Harold A. Pollack, Journal of Medical Care, American Public Health Association, Oct. 2016
3 ‘Behavioral Health Trends in the United States’, Substance Abuse and Mental Health Services Administration, September 2015.
4 The President’s Commission on Combating Drugs Addiction and the Opioid Crisis, the White House, November 2017
5 ‘Cigna is Committed to Reducing Opioid Use: Removing OxyContin from Group Commercial Drug Lists on 1/1/18’, 4 Oct. 2017
6 ‘FDA requests removal of Opana ER for risks related to abuse’, US Food and Drug Administration, June 2017