On April 29, Fletcher Allen Health Care admitted 8 patients for heroin overdoses. The hospital is not located in Detroit, Camden, Baltimore or Chicago — the cities we sometimes associate with high crime and drug use. Fletch Allen Health Care is located in Burlington, Vermont.
In January, Vermont Governor Peter Shumlin spent his whole State of the State Address on the heroin crisis crippling his state. In 2013, twice as many people died in Vermont from heroin overdoses as did in 2012. And Vermont is not alone.
Heroin use is at historic heights here in the Chicago area. In west suburban DuPage County, 43 deaths were attributed to heroin overdoses in 2012 and 46 in 2013, both an increase from 26 in 2011 and double the average number of deaths since 2007. Of the 2013 deaths, 15 occurred in the month of July alone. In the DuPage suburb of Naperville, approximately 20 youth have died from heroin overdoses over the last six years.
In Kane County, there were 20 documented heroin-related deaths in 2013 and 27 in 2012, up from 11 in 2011, seven in 2010, and 10 in 2009. In Will County, heroin deaths hit 54 in 2012 and 35 in 2013, up from 30 in 2011.
According to a Roosevelt University research study, Chicago presently has the highest number of heroin overdose-related emergency room visits for any major US city. Heroin currently ranks second behind alcohol for admissions to substance abuse treatment in Illinois.
It is estimated that between 2007 and 2012, the number of heroin users in the United States grew 79%
So why is heroin becoming so popular?
The answer, while grim, is simple. As states have started cracking down on “pill mills” — or facilities disguised as medical clinics that are really in the business of providing opioids to non-medical users — prices for illegally obtained prescription drugs like Oxycontin and Vicodin have started to rise. As a result, more and more users are switching to heroin as an alternative.
At the same time, the flow of “cheap” Mexican heroin into the U.S. has soared. It’s estimated that heroin production in Mexico grew from 6.8 metric tonnes in 2002 to 50 metric tonnes in 2011. The supply increase has not only augmented heroin availability, but also dramatically reduced the drug’s price.
This alarming trend is benefitting local prescription drug manufacturer Hospira (NYSE: HSP ). The company is one of the few to produce the drug Naloxone (brand name Narcan), which is used by addicts and treatment centers the world over to reverse the effects of opiate use.
On July 30, Hospira released its full financial results for second quarter 2014, where the company managed to smash earnings estimates by a whopping 29% — reporting earnings per share of $0.78 vs. expectations of $0.56. Much of the company’s success was attributable to growing sales volumes from specialty injectable pharmaceutical products like Naloxone.
After the announcement, Hospira shares jumped 8.3%…
Even more — there are tailwinds (other than rising heroine usage) that should ramp up demand for Naloxane.
First on the list: government support.
To combat the alarming rise in drug overdoses, state and local governments are taking bold steps to put Naloxane in the hands of everyone from first responders to good Samaritans.
Even the federal government is getting involved. On April 16, U.S. Attorney General Eric Holder said, “Today, I’m calling on all first responders — including state and local law enforcement agencies — to train and equip their men and women on the front lines to use the overdose-reversal drug known as Naloxone.”
Over 20 states have already passed legislation to expand the use and access of Naloxone, including Illinois who has one of the more comprehensive laws on the books, and the list is growing. This should provide a nice boost Hospira’s profits.
A number of manufacturers stopped producing Naloxone over the years as they pared down their non-core holdings. Demand for the drug had been low for a long time. And as a generic drug, it had little pricing power. But that’s changed.
In 2008 — the same year drug overdoses surpassed auto fatalities as the leading cause of accidental death in the United States — Hospira raised the price of Narcan by 1,100%.
Of course Narcan isn’t Hospira’s only drug. In fact, as of March 31, Hospira had 68 generic compounds in its development pipeline.