Pain management companies haven’t had their best month, with shares trading down approximately 24% on average. In fact, the second was the second worst performing in the market after Chinese solar companies. But has this sell-off created an opportunity for investors or will these companies continue to feel the pain?
Pain management companies on our radar include:
- Acura Pharmaceuticals Inc. (NASDAQ:ACUR)
- Cumberland Pharmaceuticals Inc. (NASDAQ:CPIX)
- DURECT Corporation (NASDAQ:DRRX)
- Endo Pharmaceuticals Inc. (NASDAQ:ENDP)
- Horizon Pharma Inc. (NASDAQ:HZNP)
- Pacira Pharmaceuticals Inc. (NASDAQ:PCRX)
- Pain Therapeutics Inc. (NASDAQ:PTIE)
- Zogenix Inc. (NASDAQ:ZGNX)
Competition Intensifies with Patent Expirations
The pain management industry is likely to face significant headwinds with the upcoming expiration of anticonvulsant Lyrica and antidepressant Cymbalta. Meanwhile, generic pharmaceutical companies like Teva Pharmaceuticals Inc. (NASDAQ:TEVA) are developing drugs like Fentora (fentanyl), while many others are coming on the market increasing competition.
Generics may also limit the market potential of even very efficacious drugs as patients try and weigh the costs against the benefits. With the strong efficacy seen in many soon-to-be-generics, patients may feel little need to spend the extra money on prescription drugs. As a result, many of these companies may face an uphill battle even if their pipelines materialize.
Low Valuation May Spur Industry Consolidation
The M&A market may be showing new signs of life, while the big pharma industry faces its own set of patent expirations. Companies looking to bolster their pipeline for cheap may be looking at the pain management industry, where stocks trade with a price-earnings ratio of just 12.3x compared to the 20x S&P 500 average.
In particular, many big pharmas may be now focusing on formulation and delivery technologies, according to Lux Research. Many pain companies are focused on this same niche as a way to differentiate themselves from already-efficacious generics on or hitting the market. As a result, this may further boost the argument for acquisitions in this sector.
The Takeaway …
- The pain management industry is one of the lowest performing industries over the past month, dropping some 24% on average.
- The primary reason for this decline is likely increased competition from generics and a rough overall market.
- Despite this drop (or indeed because of it), riskier investors may want to take a look at some undervalued plays focused on formulation and delivery.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.