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Two Healthcare Trends to Watch: “Boutique” Pharmacies and the Diabetes Epidemic

In the days since the Obama administration rewrote the rules of the insurance industry, healthcare has received a great deal of attention.

But even before the Affordable Care Act, the landscape of healthcare was changing – especially the pharmacy industry.

The $275 billion industry has been on a roll because of the following trends:

  • An aging population.
  • A growing obesity problem.
  • The additional drug benefits added to Medicare by the George W. Bush administration.

These trends are causing heavy shifts in the industry. Below, I’m going to discuss two expanding areas:

  • The rise of specialty “boutique” pharmacies.
  • The dramatic rise in diabetes cases around the globe.

The Specialty Pharmacy Niche Market

Demographics and policies have caused the chronic pain management drug sector to become a market full of opportunities.

Last year, more than 4 billion prescriptions were filled at around 62,000 retail, mail and boutique pharmacies. Even though some of the heavyweights in the industry have lost or are about to lose their patent advantage with many popular drugs, industry profits are still going up…

Much of the Affordable Care Act will take effect at the beginning of next year. The pharmaceutical industry should experience a new windfall in 2014 with new customers who were previously uninsured.

Yes, CVS Caremark (NYSE: CVS), Walgreen (NYSE: WAG) and other major retail pharmacies should knock the opportunity out of the park with increasing profits and rising share prices in the years to follow. But those are the easiest and obvious plays.

What’s more intriguing is the specialty pharmacy market.

This segment of the retail pharmacy industry specializes in specific treatments and services – like the chronic pain management drug market. Most people don’t know about this segment unless they or a loved one needs the services it provides.

This niche market could hand out some nice returns with the implementation of Obamacare.

The Catch-22 With Chronic Pain Medication

In 2012, $30 billion was spent on prescription pain medication. What’s more remarkable is that three-fourths of all doctor visits were due to pain issues. However, this part of the industry is heavily regulated – and for good reason.

These types of prescriptions can only be dispensed directly by written prescription by a doctor or pharmacist.

Here’s just a partial list of the drugs we are talking about: cocaine (used as a topical anesthetic), methylphenidate (ritalin and concerta), methadone (used in treatment of heroin addiction as well as for treatment of extreme chronic pain), oxycodone (semi-synthetic opioid; active ingredient in percocet, oxycontin, and percodan), morphine, mixed amphetamine salts under brand name adderall, pure codeine, and pure hydrocodone.

More than a few dealers or addicts would go out of their way to get their hands on these substances.

Another major liability issue according to recent Centers for Disease Control and Prevention (CDC) findings is that deaths related to prescription drugs surpassed 20,000 in 2008. Overprescription has a lot to do with that number.

The dilemma: You have thousands of chronic pain sufferers who truly need medications categorized as Schedule II drugs. But now pharmacies of all types and sizes are hesitant to fill the prescriptions. The overwhelming trend is toward more government regulation of the distribution of Schedule II and higher drugs. This shift will alter the way business is done.

The Answer to This Dilemma: “Boutique” Pharmacies

Assured Pharmacy (OTC: APHY) may be a tiny player, but it is set up to deal with the heavy regulation of Schedule II drugs.

It’s a personalized – or “boutique” – pharmacy that already has several locations up and running. Assured’s niche in the retail pharmacy industry is that it caters exclusively to practitioners that prescribe chronic pain medicines. It’s successful because its specialty is to have strict adherence to regulations that govern these drugs – when many doctors or big retail or other type of pharmacies don’t think the red tape is worth it.

Assured Pharmacy expects to expand from its current stores into the top 25 major metro areas by 2017. The company’s stock has risen above 140% year-to-date. APHY’s fully diluted market capitalization is somewhere in the neighborhood of $23 million, and had gross revenues north of $14 million.

This story is more than about numbers. The industry is shifting into different specialty markets. The combination of demographics, government regulation and more stringent state red tape – in places like New York, Georgia and Florida – guarantee there will be a place for boutique pharmacies like Assured in the future.

A New Tool in the Global Diabetes Fight

Governments around the globe have become weary of the dramatic increase in the rise in diabetic cases internationally. It’s not the health of their citizens that has them concerned. It’s the effect these numbers will have on healthcare costs – hundreds of billions of dollars will be spent fighting diabetes.

Here in the States, more than 23 million people have been diagnosed with the disease. What’s scarier is that many in the medical profession believe there are millions more folks who have diabetes but don’t yet know it. The American Diabetes Association says some 57 million Americans are pre-diabetic.

The healthcare industry has a problem to solve.

Playing a Niche

Research shows about 15% of diabetics will develop a “non-healing” foot ulcer. The diabetic foot ulcers market will soon hit the $2 billion mark annually.

SANUWAVE Health (OTC: SNWV) is in position to take advantage of this market. The stock has tripled in value since the beginning of the year as investors lick their lips over the expected success of upcoming trials of more cost-effective and less-intrusive technologies in treating this symptom.

Here’s what all the fuss is about.

SANUWAVE has developed a technology it calls Pulsed Acoustic Cellular Expression (PACE).

PACE uses “shockwaves” to initiate the healing and regeneration of cells. The company has applied its shockwave therapies to creating a pipeline of stimulative treatments revolving around the dermaPACE (regenerating skin tissue) and orthoPACE (stimulating bone and chronic tendonitis regeneration in the musculoskeletal environment) devices.

The PACE devices shoot their “shockwaves” into the damaged cells – or in the case diabetes patients’ foot ulcers – which causes self-healing to begin. The process has been compared to what naturally happens in your muscles after performing weight training.

When a person lifts weights, the process tears down the muscle group being targeted. During the recovery period, the muscle recuperates and actually gets stronger.

The same process has been used outside the United States in treating chronic wounds and has received rave reviews.

Looking Ahead

Expect foot ulcer trials to start in the United States very soon – most likely within this second quarter of 2013. If everything goes according to plan, dermaPACE could be rolled out in the United States by the beginning of 2015.

But you shouldn’t have to wait that long for profits.

As goals are hit along the way, share prices will go up accordingly. As the global market expands and the company’s product offerings mature, today’s prices will soon look like a steal.

Good Investing,

Jason

*The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of Wall Street analysts.


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