Could Legalized Marijuana Be Making Big Pharma Nervous?

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An effort in Arizona to legalize recreational marijuana failed last year. Insys Therapeutics(NASDAQ: INSY)helped make it happen. The drugmaker donated $500,000 to an organization that opposed a marijuana legalization proposition.

It makes sense that Insys would be against marijuana legalization. The company will soon launch Syndros, its synthetic cannabinoid drug approved by the U.S. Food and Drug Administration for treating anorexia associated with weight loss in patients with AIDS and chemotherapy-induced nausea and vomiting (CINV). Legal marijuana could be viewed as essentially a generic rival to Syndros.

As a small-cap biotech hurt by declining sales of its opioid pain drug Subsys, Insys had a lot to lose from the competition. But could even Big Pharma be nervous by potential competition from legalized marijuana?

Disruptive data

New Frontier Data, an analytics company specializing in the cannabis industry, recently released a report that evaluated the impact on the U.S. pharmaceutical industry if marijuana were legalized in all 50 states. This report estimated that between $4.4 billion and $4.9 billion per year currently spent on prescription drugs could be at risk as patients switched to medical marijuana.

The premise of the New Frontier Data study was that patients with the following conditions would be most likely to use medical marijuana rather than prescription medications: chronic pain, post-traumatic stress disorder (PTSD), sleep disorders, anxiety, nerve pain, chemotherapy induced nausea and vomiting (CINV), Tourette syndrome, glaucoma, and seizures/epilepsy. The National Academies of Science found that medical marijuana could possibly be effective in treating each of these conditions.

Earlier research lends some credibility to the idea that medical marijuana could be disruptive to the current prescription-drug market. Ashley C. Bradford and W. David Bradford of the University of Georgia published two articles in the peer-reviewed journal Health Affairs that identified decreases in use of prescription drugs in states that legalized medical marijuana for both the Medicare Part D and Medicaid programs.

Potential impact on Big Pharma

If the New Frontier Data report is correct, Big Pharma could be at risk of losing a lot of money. But which companies are most threatened?

Pfizer (NYSE: PFE) probably stands at the top of the list. The large drugmaker’s products include Effexor and Zoloft, both of which treat anxiety and PTSD. Pfizer also sells epilepsy drug Zarontin and glaucoma drug Xalatan. All of these drugs target indications for which patients could opt to use medical marijuana instead.
Allergan (NYSE: AGN) is another major pharmaceutical company with multiple products for treating the conditions identified by New Frontier Data. The Ireland-based drugmaker markets Celexa and Lexapro for anxiety as well as Alphagan and Lumigan for glaucoma.

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At least three other large drug companies claim multiple products that address conditions for which medical marijuana could be used. GlaxoSmithKline(NYSE: GSK) sells Paxil for treating anxiety and PTSD along with Zofran for treating CINV. Eli Lilly‘s (NYSE: LLY) Cymbalta and Prozac are prescribed for anxiety, with Prozac also used to treat PTSD. Novartis(NYSE: NVS) markets epilepsy drug Tegretol and glaucoma treatment Travatan.

This listing of companies only scratches the surface. There are many large (and mid-sized) pharmaceutical companies that make at least one drug that in theory could lose market share to medical marijuana.

No nail-biting yet

Just how nervous is Big Pharma about legalized marijuana? My guess is they’re not too nervous at this point.

Pfizer, for example, appears to have the most drugs at risk of competition from medical marijuana. However, all of these drugs have lost patent protection already. Pfizer expected sales declines regardless of what happened with legalization of marijuana.

Also look at Allergan. Patents haven’t expired for the company’s glaucoma drugs Alphagan and Lumigan. U.S. sales continue to increase significantly for both drugs even with many U.S. states allowing legal use of medical marijuana for several years.

Probably the drugmakers with the most to worry about are those that make cannabinoid drugs, like Insys and GW Pharmaceuticals(NASDAQ: GWPH). However, I think GW Pharmaceuticals has a pretty good strategy to achieve success with its cannabidiol (CBD) product Epidiolex despite potential competition from legal marijuana.

If some study comes along that shows medical marijuana is significantly more effective than current prescription drugs at treating certain indications, pharmaceutical companies could become anxious. For now, though, I don’t think there’s any reason for Big Pharma executives or investors to bite their nails over the threat from marijuana.

Article source: The Motley Fool



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