Preview Newsletter
Opioid Daily report (8/22/17)
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How Not to Handle the Opioid Crisis (OPINION)
Aug 22, 2017 | Foreign Policy
By Laurie Garrett
President Donald Trump announced this month that he intends to formally declare a state of emergency regarding America’s opioid crises, which a White House advisory panel told him has reached unprecedented, catastrophic proportions. Many Americans eye Trump’s pronouncements warily, as they usually begin by stating a problem most of us agree is genuine and then swiftly veer into wild territory that seems to pop out of the president’s fertile imagination. -
South Carolina sues opioid company for deceptive marketing
Aug 21, 2017 | Greenville Journal
South Carolina Attorney General Alan Wilson has filed a lawsuit against Purdue Pharma, a manufacturer of OxyContin and various opioids. -
State legislators urge action against manufacturers
Aug 21, 2017 | Pocono Record
By Howard Frank
State Rep. Maureen Madden was involved in a car crash and suffered a great deal of pain. Percocet, generically known as oxycodone, was prescribed to her. -
Nashua, Manchester consider lawsuit against pharmaceutical companies
| WMUR9 (NH)
By Jean Mackin
The state's two largest cities are considering teaming up to sue pharmaceutical companies. -
Provinces must act to prevent another OxyContin debacle (OPINION)
| The Province
By Venssa Gruben & Louise Belanger-Hardy
This month, 10 provincial governments accepted a class-action settlement with Purdue Pharma, the maker of OxyContin. The settlement concerns the misleading claims that company allegedly made to physicians about the addictive nature of the drug. These claims may have contributed to Canada’s current epidemic of opioid addiction. -
Johnson & Johnson: Bring On The Ambulance Chasers (OPINION)
Aug 21, 2017 | Seeking Alpha
By Charles Gooch, Jr.
Summary • Johnson & Johnson is still top in brand recognition in the healthcare space. • Even assuming worst-case scenarios, long-term investors will be satisfied with their holdings. • Quality still trades at a prodigious premium. -
WMTW News 8 at 11 p.m., 5 a.m. and 6 a.m.
Aug 21, 2017 | WMTW (ABC)
By Portland, ME
VIDEO LINK: http://app.criticalmention.com/app/#clip/view/28955101?token=41750c3e-0822-41b7-9589-0d54c9d2c1d6 Rough Transcript: "officials say there were 21 overdoses in the city over the weekend, with 13 on sunday alone. manchesters closing in on a total of 77 for the month, which is unusually high. city leaders in nashua, new hampshire say they are one step closer to joining manchester.in a major lawsuit against opioid manufacturers. specific companies have not been named but nashua alderman tom lopez says they need to be held accountable. he says more than 40 lives were lost to overdoses last year, and countless dollars were spent on safe stations, treatment centers and emergency responses. >> we have our police and emergency responders working day and night, overtime, trying to provide these services an save lives and our taxpayers are footing the bill people don't wake up with a needle in the arm with heroin."
Traditional Media Coverage
Broadcast Media Coverage
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How Not to Handle the Opioid Crisis (OPINION)
Aug 22, 2017 | Foreign Policy
By Laurie Garrett
President Donald Trump announced this month that he intends to formally declare a state of emergency regarding America’s opioid crises, which a White House advisory panel told him has reached unprecedented, catastrophic proportions. Many Americans eye Trump’s pronouncements warily, as they usually begin by stating a problem most of us agree is genuine and then swiftly veer into wild territory that seems to pop out of the president’s fertile imagination.
So here, Mr. President, are some basic solutions to the opioid crisis. Your advisory commission gave you many sage recommendations, which you should seriously weigh. Your Commission on Combating Drug Addiction and the Opioid Crisis was especially focused on preventing overdose deaths and helping people get off narcotics. But when you announced your intention to follow the commission’s primary recommendation by declaring an emergency, you added (from your vacation in Bedminster, New Jersey), “The best way to prevent drug addiction and overdose is to prevent people from abusing drugs in the first place.… So we can keep them from going on, and maybe by talking to youth and telling them: ‘No good, really bad for you in every way.’”
If your strategy is to stop addiction in the first place, rather than bring compassionate care and survival to those already using narcotics, you will distress first responders and emergency room professionals across the nation. They processed 142 overdose deaths per day in America in 2015 — a toll expected to soar when newer 2016-2017 statistics are tallied. That year, more than 52,000 Americans died of opioid overdoses, and early data indicates that the toll topped 60,000 in 2016.
Four years ago, before the dramatic surge in opioid use, deaths, hospitalizations, and productivity losses nationwide were estimated to cost some $78.5 billion. That’s likely low, as it understates hospitalization fees, which have skyrocketed: In 2014, alone, opioids accounted for 1.27 million emergency room visits nationwide. Also missing from this calculus are the costs of treatment and deaths soaring nationwide from needle-sharing among the addicted, spreading HIV, all forms of hepatitis, and a long list of other infections. You need only look to Vice President Mike Pence’s home state of Indiana, which is in the grips of the nation’s fastest-growing HIV epidemic, fueled by needle use that started during his tenure as governor.
Mr. President, even you noted in your remarks this month that “drug overdose is now the leading cause of accidental death in the United States, and opioid overdose deaths have nearly quadrupled since 1999.”
But let’s take your vow to “prevent people from abusing drugs in the first place” seriously.
You list two policy directions — boost law enforcement against drug dealers and users committing crimes that endanger the public and tighten security at the border with Mexico. Reminiscent of Presidents Ronald Reagan and George H.W. Bush’s war on drugs, the approach blames Mexico and criminalizes drug users.
We’ve been there before, and it hasn’t worked, though it did substantially increase the size of our prison and jail populations, to the point where we lead the entire world for the numbers of people incarcerated. According to the U.S. Bureau of Justice Statistics, in 2015 there were 2.2 million adults in prisons and jails in this country, and another 4.65 million were on parole or probation. That same year, in the juvenile incarceration system, almost 50,000 kids are imprisoned. The number of incarcerated has more than quadrupled since 1980 and the start of the war on drugs, witnessing a twelvefold increase in the numbers of Americans imprisoned for nonviolent drug offenses. By 2000, 22 percent of all federal and state prisoners were convicted for drug use, possession, or sale. Soon states were spending more on prisons than schools, as the costs of incarcerating thousands of marijuana smokers and those convicted of petty cocaine possession soared, topping $1 trillion in 2016. As judges and prosecutors around the country came to see that the war on drugs was merely creating overcrowded prisons and an entire class of underemployed and unemployable ex-con Americans — especially black and Latino men — prison sentencing for petty nonviolent drug crimes fell. Today, about 16 percent of our nation’s incarcerated prisoners were convicted for nonviolent drug-related crimes.
That “round ’em up and corral ’em” approach didn’t work. Let’s not go down that path again.
Here are some simple alternatives.
Target the lawful manufacturers. Unlike the heroin that swept America during the Vietnam War, the cocaine that filled the noses of disco dancers in the 1980s, and the crack marketed in poor urban communities in the 1990s, today’s gateway drugs are manufactured by legitimate pharmaceutical companies, most of them located within the United States. The companiesare making profits without apparent concern about how their products are used.
Across America, attorneys general and local district attorneys have filed lawsuits against the pharmaceutical giants that make fentanyl, Percocet, OxyContin, Opana, oxycodone, and other synthetic opioids — compounds that are up to 10,000 times more addictive than medical-grade morphine. These suits are coming from red and blue states alike — places like Mississippi, Oklahoma, Kentucky, and New York. The suits allege that companies like Purdue Pharma (manufacturer of OxyContin) and Endo (maker of Percocet and Opana) knowingly downplay the addiction risk of their products when marketing the drugs to physicians and provide financial incentives to doctors to promote prescriptions. The suits stipulate that the manufacturers — pharmaceutical giants like Mylan, Johnson & Johnson, and Teva Pharmaceuticals — know full well that they are selling far more of their products than are legitimately used to alleviate pain.
Distributors are also being targeted with legal action. For example, the Cherokee Nation is suing retailers CVS, Walgreens, and Walmart and drug distributors McKesson, Cardinal Health, and AmerisourceBergen for flooding the Native American community with prescription opioids “in quantities that far exceeded the number of prescriptions that could reasonably have been used for legitimate medical purposes,” according to the lawsuit. The Cherokee claim underscores the profits drugstores and retailers are making off the crisis.
Consider these examples, Mr. President. Drugstores in tiny Clay County, Kentucky, (population 21,000) filled 2.2 million doses of prescriptions for hydrocodone, plus 617,000 doses of oxycodone in 2016. Assuming all those doses were used by county residents, that translates to 134 prescriptions per man, woman, and child per year. Either the poor folks living in Clay County are wracked by an extraordinary level of collective physical pain or all those pharmacists know full well that they are feeding addictions. In another example, authorities are asking why West Virginia’s whistle-stop town of Kermit (population 392) received 9 million doses of hydrocodone in 2015-2016, shipped to a single drugstore; surely, the manufacturer and distributor knew this was suspicious.
Sen. Claire McCaskill (D-Mo.) charges: “This epidemic is the direct result of a calculated sales and marketing strategy major opioid manufacturers have allegedly pursued over the past 20 years to expand their market share and increase dependency on powerful — and often deadly — painkillers.”
Mr. President, if you are serious about stopping America’s opioid crisis, instruct Attorney General Jeff Sessions to have the Department of Justice join in these legal actions, bringing the investigatory and legal weight of the FBI to battle the multibillion-dollar pharmaceutical opioid industry and the largest distributors and retailers of the drugs. Don’t waste federal resources on isolated overprescribing doctors and puny drugstores — the states can handle those cases. Tell Sessions to nip this tsunami in the bud by going after entities that garner more than a billion dollars a year off opioids.
Stop the export of America’s opioid crisis. Since 2010, OxyContin sales have fallen 40 percent in the United States, as rival synthetic opioids have gained popularity. And thanks in part to Rush Limbaugh’s notorious addiction and drug arrest in 2006, the product has lost favor among would-be consumers and prescribing physicians. But that hasn’t stopped drugmakers from finding friendlier markets: The Los Angeles Timesrevealed an elaborate scheme on the part of the manufacturer Purdue to offshore both production and sales, targeting Mexico, Latin America, Russia, China, and Indonesia. In May, a dozen members of Congress sent a letter to the director-general of the World Health Organization (WHO), warning that Purdue and its subsidiary Mundipharma International were exporting America’s opioid crisis abroad. “The international health community has the rare opportunity to see the future,” the letter warned, saying opioid export will increase and related addictions and deaths will likely “follow the same pattern as in the United States,” due to “irresponsible—and potentially criminal—marketing of prescription opioids.”
Mr. President, America cannot become the world’s addictive drug supplier. Our foreign policy and reputation have taken enough blows; you must not let U.S. pharmaceutical makers and drug retailers become the 21st-century Medellín cartel. You don’t want to be the 2017 version of the Colombian political leaders rendered laughingstocks by Pablo Escobar, who made hundreds of millions of dollars from cocaine exportation but tainted his country’s image in the process. You should instruct your Commerce Department and Drug Enforcement Agency (DEA) to collaborate in efforts to identify U.S.-based drugmakers that are building opioid export and trade deals and identify means to limit overseas sales to actual medicinal use for immediate pain relief.
Stop the import of fake and copycat foreign-made opioids. In 2015, under pressure from the Barack Obama administration’s DEA, the Chinese government put 116 synthetic opioids on its controlled substances list. Clever Chinese drugmakers simply made minor changes in the chemistry of drugs like fentanyl, making the molecules different from those Beijing and Washington sought to regulate and, in some cases, rendering the drugs more powerful and addictive.
This year, Ohio saw an enormous spike in overdose deaths cause by Carfentanil, an opioid elephant tranquilizer manufactured by a Chinese lab. Left off Beijing’s controlled substances list, the drug is made and exported legally. When it hit the streets of Cincinnati in late 2016, the morgues started filling up. After Beijing added Carfentanil to its enforcement list, the makers simply went underground — joining the vast criminal laboratory network across China that makes fake Viagra, substandard antimalarial drugs, HIV “medicines” with no active ingredients, and phony blood thinners that kill cardiac patients.
The thriving fake drug industry dumps about $100 billion worth of bad products into the U.S. market annually, often with deadly consequences. Criminal labs exist all over the world, but the No. 1 supplier is China, with India hot on its heels. For example, the WHO estimates that in several African countries half of all drugs sold, including antimalarials, are fake medicines — most made in China or India. In China, the problem is so out of control that even the nation’s own military hospitals have fallen prey, unknowingly purchasing phony drugs and vaccines that have hurt or killed Chinese soldiers.
The DEA warns that unusually potent opioids made in China are now flooding U.S. markets. Bad as legitimately made fentanyl may be, the DEA says the Chinese drugs are far worse: more potent and more addictive. And the Chinese makers are openly shipping supplies to American drugstores, physicians, and even individuals via FedEx and other mailing services. In March, law enforcement officials seized 36 pounds of Chinese super-fentanyl that was mailed to New Jersey. Similar interdictions in posted Chinese fake fentanyl supplies have recently been made in New York, Ohio, Pennsylvania, Alaska, and Illinois — actually, in every state where the DEA has mounted a serious investigation. Nevertheless, addictive Chinese drugs can be ordered online and have been shipped to North America inside such things as printer ink cartridges.
Inside India, the use of all sorts of opium-derived painkillers is strictly limited, to the degree that it can be very difficult for cancer patients and other sufferers of acute pain to obtain alleviation. Like most people worldwide who are in acute pain and legitimately need relief, Indians cannot easily acquire morphine, any opioids, or even basic analgesics. But that doesn’t mean that India’s enormous pharmaceutical industry is missing out on opioid profits: Some have mirrored the Chinese practices, and their versions of OxyContin, fentanyl, and other drugs have reached the American market.
Mr. President, your admirers enjoy your get-tough approach to foreigners. But you need to direct your muscle to the proper targets. America’s street opioids aren’t coming across the Mexican border but through the mail from China and India. You should tell your diplomatic and trade negotiators in multiple federal agencies to let Beijing and New Delhi know that this will not be tolerated. Go ahead, get tough. When the DEA or local law enforcement identifies foreign-made opioids for sale online or distributed in the United States, notification must be directed immediately to counterparts in the countries of origin, and Secretary of State Rex Tillerson must insist that the respective governments arrest the manufacturers and distributors.
Some of your advisors, Mr. President, may be telling you that you should use the opioid state of emergency as reason to crack down on marijuana, fill our prisons with nonviolent drug offenders, and snarl at Mexico. They are wrong. Go after the real sources of America’s crisis — the drugmakers, distributors, and retailers inside the country and overseas — and bring them to their knees. If you do so, tens of thousands of American lives will be saved, small towns across Appalachia and the Midwest will come back to life, and you will be rightly praised. But handle this state of emergency the wrong way, and you will see the death tolls rise, prison populations swell, and the reputation of the United States as the planet’s addiction supplier solidified. You don’t want that, do you?
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South Carolina sues opioid company for deceptive marketing
Aug 21, 2017 | Greenville Journal
South Carolina Attorney General Alan Wilson has filed a lawsuit against Purdue Pharma, a manufacturer of OxyContin and various opioids.
The lawsuit, which was filed in the Richland County Court of Common Pleas in Columbia, contends that the pharmaceutical company violated an earlier agreement with the state by continuing to unfairly and deceptively market its opioids products, contributing to South Carolina’s rising death toll from opioid overdoses.
“My office is obligated to take action as South Carolinians continue to fall victim to Purdue’s deceptive marketing of its highly addictive opioid products without care for the lives and families it is jeopardizing,” Wilson said in the statement.
In 2007, the company signed an agreement with South Carolina and other states to reform its opioid marketing after it was accused of encouraging doctors to prescribe OxyContin for unapproved uses and failing to disclose its potential for addiction.
Wilson, however, says Purdue has continued to downplay the addictiveness of its opioids and overstate their benefits “to increase its market share and profits” rather than reform its marketing efforts to comply with the law.
He also alleges the company told doctors that patients who receive prescriptions for opioids would not become addicted and dismissed addiction as a “pseudo addiction.”
“While there is a time and place for patients to receive opioids, Purdue prevented doctors and patients from receiving complete and accurate information about opioids in order to make informed choices about their treatment options,” Wilson said.
Wilson wouldn’t say how much money the state is seeking from Purdue, but he said the company provides more opioids, largely through Medicaid, than any other drug maker in South Carolina. In fact, the company’s market share of all branded drugs in the state has risen more than 80 percent, according to figures from Wilson’s office.
“South Carolina is not immune to the headlines we see daily about the toll of opioids on individual patients, families, and communities. It has created a public health epidemic and imposed a significant burden on law enforcement and social services.”
While opioids can ease the pain for those with excruciating, chronic conditions, it can create “an addicted euphoric high,” according to the suit.
According to Wilson, South Carolina had the ninth-highest rate of opioid prescriptions in the nation last year. Since 2011, more than 3,000 South Carolinians have died from prescription opioid overdoses.
Greenville County is at the epicenter of the state’s opioid problem. In 2015, 71 people died from opioid overdoses, rivaling the number of lives lost in car accidents. The year before, 65 people died from overdoses, according to the Greenville County Coroner’s Office.
Over the years, Purdue and other pharmaceutical companies have been sued over their products by Oklahoma, Mississippi, Ohio, Missouri, and New Hampshire, as well as by cities and counties in California, Illinois, Ohio, Oregon, Tennessee, and New York.
In 2007, Purdue actually pleaded guilty to federal charges for misleading the public about OxyContin’s risk of addiction and agreed to pay $634.5 million in one of the largest pharma settlements in U.S. history. But the company has denied Wilson’s allegations.
“While we vigorously deny the allegations, we share South Carolina officials’ concerns about the opioid crisis, and we are committed to working collaboratively to find solutions,” Purdue told the Associated Press.
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State legislators urge action against manufacturers
Aug 21, 2017 | Pocono Record
By Howard Frank
State Rep. Maureen Madden was involved in a car crash and suffered a great deal of pain. Percocet, generically known as oxycodone, was prescribed to her.
“I didn’t have any problem getting a refill,” she said. “I never abused it and said to myself if I’m going to move on I have to get off of it, but there are people predisposed to addiction. I think we need some help.”
Now, local state legislators are pushing for action against the manufacturers of pharmaceutical opioids over the costs and damage the drugs have done to residents of the state.
State Sen. Mario Scavello recently sent a letter to Pennsylvania Attorney General Josh Shapiro, encouraging him to join six other states in suing the pharmaceutical companies that manufacture and market drugs like oxycodone and hydrocodone.
″. . . it is critical that your office provide an additional tool to combat drug manufacturers’ misrepresentation of the risks of opioid drugs — pills that too often lead to a spiral of addiction and, ultimately, death,” Scavello said.
New Hampshire, Ohio, Missouri, Tennessee, Oklahoma and Mississippi are all suing opioid manufacturers for failing to educate doctors about the risk of addiction for these drugs.
“We have a big opioid problem here in Pennsylvania,” Scavello said. (The pharmaceutical manufacturers), these guys have made a tremendous amount of money selling these drugs. Hopefully we get some of them to help these folks get the treatment they need.”
Madden said there is a resolution in the health committee that also urges the governor and attorney general to sue the pharmaceutical companies. She is a co-sponsor of the bill.
“I agree that pharmaceutical companies took part in deceptive practices, said they were not addictive, really safe,” she said. “I do believe they bear some responsibility, in putting forth some money for prevention and drug treatment.”
Madden and others liken it to the anti-tobacco campaign several years ago. “We need to be running that same campaign about opioids.
“It’s imperative we recover the cost of treatment.”
State Rep. Rosemary Brown backs the idea of taking action against the drug-makers. She is currently a member of the PA HOPE (Heroin, Opioid, Prevention and Education Caucus) Caucus in Harrisburg which focuses on this crisis. She was also the prime sponsor a 2016 law which prohibited emergency rooms and urgent care centers from prescribing more than 7 days of an opioid, with some exceptions for cancer patients and palliative care.
“I would like to see a strong investigation and more information presented on the clinical trials and data of opioids,” she said. “If based on those clinical trials, the pharmaceutical companies knew the extreme addiction quality was so strong but failed to educate their sales teams and physicians appropriately on the risks and benefits before prescribing then there may be a possibility.”
Scavello said, “If it’s going to cost a tremendous amount of money treating them, they should bear some of these costs. People are losing their lives. Let’s help some of these people before it’s too late.”
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Nashua, Manchester consider lawsuit against pharmaceutical companies
| WMUR9 (NH)
By Jean Mackin
The state's two largest cities are considering teaming up to sue pharmaceutical companies.
Nashua is one step closer to joining Manchester in a major lawsuit against pharmaceutical companies that have not yet been named.
“If you're a business that profits off the pain of others, you need to be held accountable,” said Nashua Alderman Tom Lopez.
Lopez said the cost to his city is overwhelming, with more than 40 lives lost to overdoses last year and money spent on Safe Stations, treatment centers and emergency responses
“We have our police and emergency responders working day and night, overtime, trying to provide these services and save lives, and our taxpayers are footing the bill,” he said.
“It's been pursued in other states and they won, and hopefully the state of New Hampshire will win also,” said Manchester Mayor Ted Gatsas.
Gatsas stands behind the state's suit against the maker of OxyContin, which was filed earlier this month. The suit alleges negligent marketing and distribution led to opioid abuse.
Purdue Pharma, which makes OxyContin, denied the allegations, saying it supports drug monitoring programs, access to the overdose antidote naloxone and developing abuse-deterrent technology
The lawsuit from the cities would be filed separately. They have not named the drug companies from which they would seek compensation.
“We're trying to send a message: People don't wake up with a needle in the arm with heroin,” Gatsas said. “It starts somewhere. There are drugs that are out there that are being prescribed that have an awful lot of danger for people.”
In Nashua, a committee is reviewing the lawsuit proposal before it moves forward. If approved, a law firm is willing to work at no cost to the cities.
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Provinces must act to prevent another OxyContin debacle (OPINION)
| The Province
By Venssa Gruben & Louise Belanger-Hardy
This month, 10 provincial governments accepted a class-action settlement with Purdue Pharma, the maker of OxyContin. The settlement concerns the misleading claims that company allegedly made to physicians about the addictive nature of the drug. These claims may have contributed to Canada’s current epidemic of opioid addiction.
The $20-million settlement, including $2 million to the provinces, is widely considered to be insufficient to address the costs associated with this epidemic. If all courts approve the settlement, as an Ontario court did last month, Canadians will be responsible for covering the mounting costs associated with opioid addiction.
So why settle?
One reason the provinces have accepted this inadequate settlement is because they were lumped into a class-action lawsuit brought by a group of Canadians addicted to OxyContin.
Although it may be too late to change the outcome in this case, we propose two solutions to increase pharmaceutical manufacturers’ accountability to Canadians and their governments. Indeed, if provincial governments have more latitude to sue and patients have easier access to the courts, the Canadian legal climate may more efficiently deter drug manufacturers from making unfounded claims about their products.
The first proposal is to pass provincial legislation across the country giving the government legal authority to bring an action against pharmaceutical companies (or drug manufacturers) to recoup hospital, medical and other costs resulting from illnesses related to a company’s actions.
The provincial governments can look to the provincial tobacco recovery laws for guidance as they allow a provincial government to collect hospital, medical and other costs resulting from tobacco-related illnesses such as cancer, heart disease and stroke. The laws set out a number of evidential and procedural rules facilitating recovery of compensation for such costs. For instance, they can provide for a reverse burden of proof so that it is up to the defendant manufacturer to prove that its actions did not give rise to the disease for which the province claims expenditures.
Although certain aspects of these laws would have to be modified, the key principle would be the same: the province could directly start a legal action to recover the cost of health care costs related to the wrongful actions of drug manufacturers. The Supreme Court of Canada confirmed the constitutionality of tobacco recovery laws in 2005.
The second proposal is to make it easier for more Canadians to succeed in class action lawsuits. Class actions allow claimants to join together to sue a party and as a result, reduce individual litigation costs. Quebec, the country’s most progressive province regarding consumer protection, has made class actions more accessible by lowering the burden imposed on claimants who wish to bring a class action for harm they have suffered. Unlike the common law provinces, Quebec’s procedural rules make it easier for claimants to achieve class action status. Claimants need only demonstrate that they have an arguable case and it is assumed that the facts they allege are true.
There is a strong history of successful class actions in Quebec. Indeed, a Quebec court recently awarded $15 billion in damages to members of two class actions launched against the tobacco industry for their failure to warn consumers about the health effects of their products.
What is needed across Canada now is a legal regime that has real consequences for pharmaceutical companies. Until we raise the costs associated with wrongdoing in Canada, companies will continue to act with impunity — with real life consequences. And Canadians left to pick up the health care tab.
Vanessa Gruben and Louise Bélanger-Hardy are members of the Centre for Health Law, Policy and Ethics and professors in the Faculty of Law at the University of Ottawa.
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Johnson & Johnson: Bring On The Ambulance Chasers (OPINION)
Aug 21, 2017 | Seeking Alpha
By Charles Gooch, Jr.
Summary
· Johnson & Johnson is still top in brand recognition in the healthcare space.
· Even assuming worst-case scenarios, long-term investors will be satisfied with their holdings.
· Quality still trades at a prodigious premium.
In May 2015 I was quite despondent. Having a significant portion of my capital in Prospect Capital (PSEC) had my portfolio balance going the way of the dodo. I finally made the tough decision to bail without waiting to get back to even, and instead fly to quality by opening a position in Johnson & Johnson (JNJ).
Not only has this resulted in greater financial returns in that I have sufficiently recovered (and more) from my original boneheaded move, it has resulted in greater emotional returns as well, as I spend no energy worrying about yet another dividend cut. But most importantly, there are the mental returns in knowing that the good investment I made continues to be so.
Mindshare
You know your company has branding power when the brand name becomes the de facto name for the item. For example, they're not "cotton-swabbed applicators"; they're Q-tips (UL). It's not spray lubricant; it's WD-40 (WDFC). And even though I'm a Microsoft (MSFT) shareholder, "google it" sounds much more compelling than "bing it".
Johnson & Johnson is indisputably home to more of these branding instances than any other healthcare company, and many companies in general.
When one steps back and takes a look, a couple of stats are simply astounding:
24 Johnson & Johnson brands generate over $1 billion in sales annually.
75% of sales come from brands or products that are either #1 or #2 in market share globally.
Lest we think that they intend to simply rest on their laurels, over a fifth of yearly revenue comes from products that were introduced within the last five years. This evidence for a culture of innovation promises to stretch out into the future as between now and 2021, ten new potential blockbusters will either launch or be submitted for regulatory approval. Moreover, over this same time frame, there are plans for over fifty line extensions for new or already existing medications.
Equally as encouraging is that even though all this is going down, JNJ is keeping its vaunted margins intact, even as it drags its lower-margin consumer business.
Also, since JNJ (along with BMY) has the lowest percentage of debt to equity among its peers, what manifests is a greater return on its various stakeholders' invested capital.
For JNJ in particular, its ~16% ROIC looks particularly beautiful beside its 7% cost of capital.
Risks
An investment in Johnson & Johnson is not "guaranteed". Even though it has a higher credit rating than the U.S. Government and every other S&P-rated company but Microsoft, there are of course risks associated, which I have ranked from least to most significant.
Xarelto Shmarelto
Bristol Myers Squibb (BMY) and Pfizer's (PFE) drug Eliquis has essentially taken over the #1 market share spot for anti-coagulants (blood clot prevention) from Xarelto, and is now rocking over $1 billion in quarterly sales.
Two things to note, however. First, this doesn't mean that Xarelto is dead. There will be full data on Xarelto's COMPASS study released by the European Society of Cardiology soon. It has been learned already that Xarelto reduces major cardiac events more than aspirin. According to Credit Suisse, at least four million more patients could eventually become candidates for Xarelto as a result of this study.
Secondly, if we were to throw the previous paragraph to the wind and act as if Xarelto sales never happened, the pharmaceutical segment would have a black hole in 6.8% of its 2017 pharmaceutical revenue.
Invokana cuts off your limbs
Invokana is a type-2 diabetes medication that works by causing or forcing the kidneys to remove blood sugar through urine. However, in May the FDA notified that there is over twice the risk of amputations (toe, foot, leg) versus a placebo. Diabetics taking canagliflozin (Invokana or Invokamet) over two clinical trials (CANVAS and CANVAS-R) found that the risk of amputation was 5.9 and 7.5 per 1,000 patients, versus 2.8 and 4.2 for the placebo, respectively. As of July, this was already reflected in product labeling.
However, let us suppose that this really came to a head in late 2016, and the FDA forced JNJ to take Invokana out of commission before a sale had been made this year. So far, this would have deprived JNJ of $579 million in sales, against a pharmaceutical segment total of over $16.8 billion (3.43%).
Remicade biosimilars
In April the FDA approved the second biosimilar to JNJ's Remicade medication (rheumatoid arthritis, Crohn's disease, etc.), allowing Samsung Bioepis' Renflexis to join Pfizer (PFE) and Celltrion's Inflectra.
I am not a healthcare professional by any stretch of the imagination, but I happen to think risks from biosimilars (not just JNJ's) are a bit overblown. There is one simple reason behind my opinion: switching costs in the medical field are seriously underrated. What I mean by this is, if a doctor and a patient have already undertaken a medicine regiment that is both safe and effective, there is little incentive and much risk to switch.
However, let's throw all this to the wind and imagine for a moment that Renflexis and Inflectra combined to completely eradicate Remicade sales. While Remicade is by far JNJ's largest drug, it accounted for under 8% of revenue (although 17% of pharma segment) in the just-completed second quarter.
"You May Be Entitled to a Large Cash Award"
In my opinion, the biggest risk by far to my JNJ investment is what seems to be coming down the pike. As fellow SA contributor David Pinsen very ably detailed, the Financial Times has reported that as a result of the opioid (morphine, oxycodone, etc.) crisis, a whole host of companies in the health care space could be in line to cut checks at levels not seen since the tobacco settlement in the late 90s.
In November 1998, Philip Morris, Lorillard, RJ Reynolds, and Brown & Williamson agreed to pay over $200 billion during the next 25 years, resulting from attempts made to hide the negative effects of smoking.
I understand full well that hope is not a successful strategy - I used to be a Prospect Capital shareholder. But I sincerely hope that logic will win the day and it will eventually be proven that Big Tobacco vs. Big Pill is essentially apples vs. oranges.
First, it was decades after doctors had stopped prescribing cigarettes and went the other way that the settlement was reached. Doctors had long seen that tobacco had no medical benefit. However, like them or not, opioids do. Whether or not the risk of addiction outweighs the painkilling benefits is a debate for another day.
Second, the tobacco settlement involved four companies. However, there are so many variables in litigating the opioid crisis that make it difficult to pin down liability. Are pharmaceutical companies wholly at fault for making them? Shouldn't physicians and hospitals carry some of the blame for prescribing and administering them? Shouldn't pharmacies carry some for filling the prescriptions? Shouldn't insurance companies carry still more because they covered the medications? There's obviously plenty of blame to go around, and the more deep pockets that are found in more pants, the less of a total hit for JNJ.
Third, not to sound too crass, but there are no free lunches in nature. Anytime a person's body chemistry is altered, there are certain tradeoffs. Hopefully, any perspective jury pool will understand this and act accordingly, rather than the disgusting but steadily more ubiquitous, "Oh, they're rich. They can afford it."
It's the End of the World as We Know It
I'm not confident at all in positive results from that last paragraph. So it is important for investors to understand that when crises hit, very often it presents a buying opportunity for long-term investors rather than an excuse to panic and sell.
This can be demonstrated across industries, but specific to the aforementioned tobacco industry, the British Journal of Medicine noted that all four tobacco companies involved in the settlement still outperformed the market from 1999-2002.
In fact, according to Buyupside, an investor randomly buying MO on November 8, 1998 (15 days before the settlement was reached) and holding until today would still have earned a return almost triple that of SPY.
Moving over to the oil industry, here is a chart for BP (BP) from the day before the Macondo/Deepwater Horizon oil spill:
Investors who bought in as a result of the panic would still have a gain as of now, even accounting for the precipitous drop in oil prices, two dividend cuts and worries of a third.
Staying with the oil industry, here is a price chart for Exxon Mobil (XOM), starting from the day before the Exxon Valdez oil spill. What was certainly a tragedy at the time barely registers as a blip on the radar.
urning to the financial industry, in 2013 the US government hit S&P with a $5 billion lawsuit for defrauding investors by rating mortgage-backed securities and collateralized debt obligations higher than they should have been in order to gain favor with the issuers.
Investors had long since turned to apathy before the $1.375 billion settlement was reached in 2015.
Perhaps then, if the ambulance chasers come after JNJ as a result of the opioid crisis, then it will result in the opportunity to buy it without worrying about chasing the stock itself.
All Quiet on the Income Front
Of the risks highlighted above, the dividend is not one of them. Recently, better-heeled SA contributor Dividend Investors recently noted that JNJ's dividend payout ratio is approaching extreme levels and so existing shareholders should be concerned. Is this correct? Not hardly.
There is a reason why "dividends paid" appears on the cash flow statement instead of the income statement. Dividends are paid out of the cash that a company generates. For companies such as JNJ, a better barometer for dividend viability is not in proportion to its earnings per share, which can be altered by acquisitions or divestitures, taxes or interest, but the actual cash that is generated by the business.
When looked at in this light, what was essentially a mole hill turns into almost an ant hill.
Anything under 75% is perfectly fine. And with free cash flow continuing to trend upward, the streak that has been intact since Muhammad Ali was still Cassius Clay is in no foreseeable danger.
Valuation
My time with Johnson & Johnson has convinced me that it belongs in every long-term investor's portfolio as a core position. However, it is not a buy at any price. Given its cost of capital, any estimated increase in free cash flow over 2% make today's price a bargain. However, since valuation is more art than science, it is important to look at other metrics.
According to the past ten years of data for dividend yield, price to earnings, and price to free cash flow, today's sticker price is nothing to write home about.
In my personal portfolio, even though I largely bought without looking at valuation in a panicked flight to quality, I don't add more until it yields 3%. At the current $3.36, this means a drop all the way to $112.00, over 18% from Friday's close.
Unfortunately, it's either a Great Recession or those ambulance chasers that will get it there.
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WMTW News 8 at 11 p.m., 5 a.m. and 6 a.m.
Aug 21, 2017 | WMTW (ABC)
By Portland, ME
VIDEO LINK: http://app.criticalmention.com/app/#clip/view/28955101?token=41750c3e-0822-41b7-9589-0d54c9d2c1d6
Rough Transcript: "officials say there were 21 overdoses in the city over the weekend, with 13 on sunday alone. manchesters closing in on a total of 77 for the month, which is unusually high. city leaders in nashua, new hampshire say they are one step closer to joining manchester.in a major lawsuit against opioid manufacturers. specific companies have not been named but nashua alderman tom lopez says they need to be held accountable. he says more than 40 lives were lost to overdoses last year, and countless dollars were spent on safe stations, treatment centers and emergency responses. >> we have our police and emergency responders working day and night, overtime, trying to provide these services an save lives and our taxpayers are footing the bill people don't wake up with a needle in the arm with heroin."
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