Another great post N2K. I'd think some clarification of the characterization of the ELTP line as "substitutes" (last paragraph) on the basis that it has substitutable/generic qualities, needs to be elucidated further--in that such attributes does not lead to a myopic application of a generic strategy along the Porter paradigm (and I'm not saying this because that is what you are advocating; rather, for those unfamiliar, clicking on the link to Porter's five-forces paradigm can be misleading in our case). Yes, absolutely the ELI lines are all built to "substitute" for the multitude of non-ADF opioid lines for the purposes of pain reduction. The Oxy is the exact same molecule as branded oxy. The naltrexone is also a generic; same molecule.
But per your example, water, while a potential substitute for Coke and Pepsi, is far from a perfect substitute, with Coke and Pepsi (differentiated, and able to charge more) closer substitutes (but not perfect) for one another. And as you well know, Porter maintains, the closer a generic is as a substitute to the branded product in question, the more it can become a strategic threat due to lower price spent on branding/advertising etc.
With ELI200, the Oxycodone is actually a perfect substitute w/respect to pain reduction--same molecule. Thus, when simply referring to those people who are taking such opioids for pain as prescribed, it should act as an undifferentiated substitute. Patient/consumers should be fully indifferent between a prescription for oxycodone or SequestOx. But, with the combination of sequestered naltrexone (a generic), it is far from a "perfect substitute" to addicts (or those on the way to addiction) who snort/shoot/chew for the euphoria effect over pain, and more importantly, for the doctors who prescribe the ADF's who have a moral obligation and potential legal accountability for the well-being of those that treat. That is, it's a perfect substitute/generic for "normal" pain purposes, but highly differentiated for both those seeking euphoria, and to doctors focused on patient and professional risk reduction (particularly w/opioids at this time).
It's the doctor, not the addict, who chooses which variety of opioid they take. An "euphoria addict" cannot ask his pharmacist to substitute a specific prescription for SequestOx with one for a different brand of oxy if that's specified in the script. Doctor's at a minimum, are indifferent as long as the same pain relief is attained, and the vast majority, will favor a responsible pain management + CYA approach of prescribing an ADF opioid over non-ADF, when ADF is available. Thus, IMO, the characterization of the ELI line as that of generic/substitutes while in regards to pain relief is apt, but not with the dangers and problems associated with patient addiction/abuse, and that is an especially important point because if the "substitute" is differentiated enough, it really would take on characteristics of an almost separate product (to the point of being a "disruptive" technology as you have previously characterized it) to those who control the access.
Of important note, was NH's response on a CC (either 2 or 3 ago) when asked if these were going to be treated as/priced as a generic. He laughed, and said a definitive "no." NH is not proceeding with the low-cost strategy that normally accompanies a generic product. Rather, he is using the sequestering technology and delivery method (multiple beads) alike differentiation in a manner one would for a new drug, with strong appeal to doctors wishing to avoid addicted patients/OD's from abuse, and thus consequently, planning on equal(or premium) pricing, that is consistent with a differentiated strategy.
IMO, given this, several things will likely occur. First, as it will be harder for current addicts to get the euphoria from abuse, they will "doctor shop," until finding one who will prescribe the abuseable forms. And there are pill-mill sleezes docs out there, will be more than happy to fill such a niche. But, w/the ADF's available, the only way to shut down such scam clinics, short of the one-at-a-time bust method, would be through legislation mandating that if ADF's are available, they become the prescription of choice. As addressed by many on the board, there is such a-political legislation supported now, the problem is lack of ADF's; once they get rolling out, this mandate will have effect. Moreover, I point you to the thoughts of the FDA, where acknowledging such legislation could have a monopolistic effect, and in the spirit of avoiding of antitrust issues, have said they would allow, but limit, the number of ADF's issued per opioid class, to about two companies each.
My point here is that the application of "textbook" Porter is anything but textbook in this case, when it comes to the assumption of following a traditional generic-based strategy, simply because ELI200 is a "generic" of Oxy. This also posits that assumptions of valuation need to use the pricing and develop competitive strategy using a model whereby ELI's "generics" are more consistent with a highly differentiated product as it replaces and becomes the dominant new standard-of-care in pain treatment protocols relative to the current branded non-ADF types, and the other existent non-ADF generics. Hence, their revenue could be substantially more as they would be able to at a minimum charge the same as the branded, if not more. The demand by both physicians and regulators, would in effect, act to garner large market share simply due to the ADF properties (and almost perfect efficacy for pain reduction).
With the emerging legislation on the horizon, ELTP's "investment" to market their "generic" would also be minimal as the FDA mandates would essentially do it for us (while we enjoy the admittedly only-on-market status per opioid class). It's the BP's that will have to develop strategies on how to compete with the ADF's or go about investing and building their own. Or...buy the competition, and enjoy lower barriers to entry (given proof-of concept) and make huge inroads on the market share of competitors.
All JMHO. I don't disagree with a thing you have said, but I think it essential in this case to maintain the clarification that while the ELI's are often refereed to as "generics," trying to fit it into the shoe of a "generic" strategy is not that simple here; such semantics can be quite misleading in such a unique position as ours, and such a distinction essential for both strategic direction and valuation (though the unknown mark-up on the sales, and other such unknowns, inherently makes a true valuation by any non-inside investor prone to error as necessarily inclusive of unknown assumptions).
So much riding on this approval decision. Yeah, love our odds, but will be a stressful Fourth of July waiting, hoping...less than two weeks of this sword of Damocles hanging over our heads. Gotta go find something to blow up (other than my trading account).
My best to you and all,
Maz
