By VFC’s Stock House
Discovering industry trends early and then establishing positions in companies who may benefit from those trends ahead of the general market could quickly turn into a successful trading strategy. For a prime example of such, look no further than 3D Systems Corporation (NYSE:DDD) and Organovo Holdings Inc. (PINK:ONVO). Shares of both companies traded along relatively under the radar until investors caught onto the fact that 3D printing was advancing quickly enough that the next generation of the technology was quickly becoming considered the ‘now’ generation. Shares of 3D Systems (DDD) tripled in quick time, as did the more speculative Organovo Holdings, whose technology could eventually be used to ‘print’ organs for transplant patients, and investors who caught the trend early were very handsomely rewarded.
Over the course of the past few weeks we’ve also discussed heavy trend shifts towards diabetes treatment, since that industry is growing at alarming rates. Companies such as SANUWAVE Health (OTC:SNWV), AntriaBio, Inc. (OTC:ANTB), and MannKind Corporation (NASDAQ:MNKD) have already seen their respective share prices rise over early-year levels as key upcoming catalysts and more cost-effective and less-intrusive technologies could quickly thrust each company to the forefront of the booming multi-billion dollar industry.
Another sector trend worth identifying now is shifts within the chronic pain market. Treatment of chronic pain conditions remains stable at $20 billion-plus in the US on an annual basis — $50 billion globally — and numerous companies whose share prices could stand to appreciate in value, pending developing catalysts, are lining to take advantage of the next generation of this robust sector. When assessing the trends inside this portion of the industry, it’s important to bear in mind that for years this subsector has been run with the cowboy flair of the ‘anything goes’ lifestyle – hence some of Hollywood’s greatest stars becoming living train wrecks and a significant amount of those treated for chronic pain becoming addicted to their medications. To combat those facts, the new wave of health care treatment revolves around preventative medicine, while also emphasizing less-intrusive and more cost-effective processes and products.
The US may be a little behind the curve in this sense, as emphasis for decades has been on treatment — not curing — because there is no money in a cure like there is in treatment.
Some examples of companies jumping head-first into the new shift in strategy can be identified by BioDelivery Sciences International Inc. (NASDAQ:BDSI) and Titan Pharmaceuticals Inc. (OTC:TTNP). BioDelivery, for example, has received multiple approvals for Onsolis, a treatment for chronic pain caused by cancer. Onsolis involves placing a strip of film to the inner lining of a patient’s cheek, a method intended to control delivery and mitigate the risks of addiction. Titan, on the other hand, has developed the ProNeura technology, which is a subcutaneous ‘stick’ implanted in a patient’s armpit and — like BioDelivery’s strip — allows for controlled release and drastically reduces a patient’s risk of addiction. In fact, the first indication for which ProNeura has been designed to treat is opioid addiction — a treatment known as Probuphine — often for patients who have already become addicted to other pain medications.
In identifying the benefits offered by these two companies and their respective technologies early, investors were rewarded with quick share price triples. In fact, Titan traded for a penny at one point as a result to failures of another product in its pipeline unrelated to Probuphine. Those that saw potential in Probuphine, which is also being developed for the treatment of chronic pain and not just addiction, and identified early shifts in the market were rewarded.
Although the above-mentioned companies address ongoing shifts in the sector, leading to more controlled and responsible use of drugs and treatments in the industry, they still don’t key directly on the preventative side of the house – for that we can look directly to the controlled distribution points of today’s most common drugs and treatments, the pharmacies. Any consumer will find one location of any of the biggest market players — be it a Walgreen Company (NYSE:WAG), Rite Aid Corporation (NYSE:RAD) or CVS Caremark Corporation (NYSE:CVS) – on just about every street corner or within every strip mall in America. Patients filling and refilling prescriptions at these locations has turned into an industry registered in the hundreds of billions of dollars. It’s such a lucrative business that even the likes of Wal-Mart Stores Inc. (NYSE:WMT) jumped in with a pharmacy of its own.
While the industry is booming, the idea of treating patients may have been lost in the quest to pull in the big bucks. Like cattle, patients are herded through isle after isle of candies, cards, magazines and food items before lining up to receive a prescription in the back of the store. Pharmacies are not pharmacies any more — if they ever were — they are merely miniature versions of your favorite supermarket. In some states, one can even pick up a few beers and a bottle of wine for the big game while filling a prescription, hardly an experience centered on the patient. Let’s face it, in the world of big business, money wins and personalization loses — that’s just the nature of the beast.
With that in mind, there may be another industry shift underway that encompasses all of the items discussed above – the shift towards personalized and preventative patient care in the prescription market.
Assured Pharmacy Inc. (PINK:APHY) may be one such up-and-comer that is positioned to take advantage of these trends. As a personalized — or ’boutique’ — pharmacy with multiple locations already in operation, Assured Pharmacy has jumped into the chronic pain market and is consistently setting the standard for personalized and professional patient care in the pain prescription market. In concentrating the first phase of its development in four smaller markets, Assured raked in fourteen million dollars in revenue last year and has eyes towards significant expansion over the coming years. Since the precedent has already been set that the business model can work, much larger markets are now being targeted, with a location in Denver, Colorado slated to open next, according to the latest financial report. Encouragingly enough, and again according to the company’s above-linked financials, it takes roughly $350,000 to open a new location — a relatively modest amount, given the financial girth of the industry.
It should also be noted that although the initial revenue streams look encouraging for future growth prospects, the latest report also indicates that the company is still registering losses, too. Expansion into much larger target markets should help alleviate the losses, as the customer base could potentially grow exponentially on a per-capita basis, especially if Assured can capitalize on the personalized services that are being sought after by the “me” generation. After all, in the absence of the daily threat of a global nuclear war breaking out, the population is in tune with the ‘it’s all about me’ mantra more now than ever before. That fact paves the way for boutique pharmacies such as Assured to thrive.
Established pharmacies are still going to pose a major threat to Assured Pharmacy (APHY) gaining market share, regardless of the benefits provided, but the road ahead looks manageable. Aside from just offering personalized services that cater to an individual patient’s need, Assured can also benefit from its more stringent and tight monitoring of prescriptions and decreased potential for abuse that result from its business model, which could make the company a more desirable option for public and private health care professionals and/or relevant insurance companies. Additional benefits exist in terms of cost-efficiency since the personalized model better enables doctors and patients to identify early on the medication most applicable to his or her condition. The popular culture of ‘try this and see what happens’ may be going the way of the 8-track.
Although risks still exist in regards to the business model moving forward, the company’s current market cap and lack of viable trading volume indicates that investors are not yet sold on Assured’s potential to thrive, or even its ability to carve out a niche market within the tens of billions brought in by pharmacies for pain medications yearly. As discussed in the above paragraphs, the risks are still notable for the company, but as also discussed, identifying early trends and sticking with them can enable investors to reap rewards by already being ‘in’ before the broad investing base jumps on board. Very modest volume has already enabled shares to more than double since the year’s open, but a fair amount of speculative interest could push shares higher still. It’ll be worth monitoring those numbers.
Health care in general is likely to garner an increased amount of attention again this year as Obamacare hits full stride, and companies that succeed in preventative and personalized care stand to prosper. Titan and BioDelivery, for example, could lead the way through the transition period of these trends while the boutique pharmacies — like Assured — could gain a foothold now while sitting on the cutting edge of the next generation of pharmacy care.
As always, investors should always conduct his or her own DD and invest accordingly, while entertaining risks and losses as well as future growth potential. In the case of Assured Pharmacy and some of the other companies listed above, the prospects of capitalizing on shifting healthcare trends exists and could be worth a look for the more speculative portfolio.
Disclosure: Long APHY, SNWV, ANTB.
VFC’s Stock House offers investing opinions, insight and ideas on a variety of different stocks, options and ETFs, as well as commenting on news that affects the market.
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