A Closer Look at the Controversial Market Growth of ADHD Treatments
Editor's note: In a previous version of this article, details on the generic versions of Adderall XR, FDA approval date for the use of Vynase in adults, and the patent expiration date for Concerta were incorrect. Also, a reference to ADHD "kick-backs" was removed due to a lack of supporting evidence. The Fool regrets the error.
The existence of ADHD, or attention deficit hyperactivity disorder, has been a hot-button topic since the 1970s. On one hand, there are scientists who believe in treating it as a neurological disorder with pharmaceuticals, and on the other hand, there are parents, teachers, and administrators who believe that ADHD is a behavioral, rather than psychological, issue. Accusations of over-prescriptions of ADHD medications -- for both approved and off-label purposes -- have further clouded the true facts and figures.
Therefore, I believe that people should better understand what ADHD is, what the treatments are, and which companies stand to gain the most from these medications.
What is ADHD?
Children who are diagnosed with ADHD often act without thinking things through, have trouble focusing on single tasks, and are physically hyperactive. Although they might understand the task at hand, they exhibit difficulty completing it since they aren't able to sit still and pay attention. Critics of ADHD claim that these qualities are present in all children, and tend to wane as they physically mature.
Proponents of treating ADHD believe that the disorder occurs over a longer period than traditional daydreaming or horseplay, eventually impairing a child's ability to function academically and socially. Although the exact cause is still unknown, brain-imaging studies have shown that brain growth in children with ADHD -- especially in the areas used for thinking, paying attention, and planning -- is delayed by three years in comparison to children who are not affected.
ADHD affects approximately 8% to 10% of school-age children, and boys are roughly three times as likely as girls to be diagnosed with it. According to data from IMS Health, prescriptions for ADHD treatments spiked 39% between 2007 and 2011 in the United States. That big jump raises a troubling question -- are these medications being over-prescribed, and if so, which companies stand to benefit the most from these sales?
Meet the king of ADHD medications
Irish pharmaceutical company Shire is the most established name in modern ADHD medications. The company is the creator of Adderall, one of the most popular ADHD drugs in the world. The patent for Adderall expired in 2009, but the complexity of the drug and demands from Shire for the generic versions to be more thoroughly tested led to FDA approvals being delayed.
In 2011, Adderall XR (extended release) generated $533 million in sales, accounting for 13% of Shire's annual revenue. While authorized generics were sold by Teva Pharmaceutical and Impax Labs starting in 2009, the FDA later approved generic versions manufactured by Actavis in 2012 and Tevain 2013.
Shire wasn't finished with ADHD, however. The company released Vyvanse, its successor to Adderall, which was approved by the FDA in 2007. In 2010, it was approved for adolescents, and in 2008 it was approved for adults. Both Adderall and Vyvanse are stimulants, which are generally more potent per dose than non-stimulants. However, Vyvanse is 100% D-amphetamine, whereas Adderall is a more potent mix of four different D and L-amphetamines.
D-amphetamines reduce impulsiveness and overactivity, while L-amphetamines increase concentration but raise anxiety levels. Shire claims that Vyvanse causes less anxiety and fewer related side effects than its predecessor.
That idea paid off for Shire last quarter, when sales of Vyvanse rose 13% year-on-year to $300 million, accounting for 23% of the company's top line. That gain easily offset a 16% decline in Adderall XR sales, which fell to $112.3 million due to generic competition. Shire also has another rapidly growing non-stimulant ADHD drug, Intuniv, which reported 31% sales growth to $90 million last quarter.
From antidepressants to ADHD
Eli Lilly , which is best known for its antidepressants Prozac and Cymbalta, is also the maker of another prominent ADHD treatment, Strattera. Unlike Adderall, Strattera is a non-stimulant, which makes it less potent per dose but safer for longer-term use. It is also notably the first ADHD treatment specifically approved for adults.
Like Shire's Intuniv, Strattera is not classified as a controlled substance since it does not target levels of dopamine in the brain -- the primary source of addiction and pleasure. Non-controlled substances can be prescribed with refills, whereas controlled substances cannot, which guarantees a more stable stream of revenue for the drugmaker.
Although Strattera is still a popular treatment for ADHD, its growth has leveled off in recent years. Eli Lilly reported sales of $621.4 million for Strattera, up a mere $1.3 million from 2011. The drug currently accounts for 2.7% of Lilly's top line.
Back to the basics
Any discussion about ADHD would not be complete without mentioning Ritalin, the original ADHD medication. Ritalin was originally created by Novartis , which still generates considerable revenue from its LA (extended release) and SR (sustained release) variants. In 2012, Novartis reported $554 million in Ritalin sales, up 51% from 2011. However, Ritalin is just a drop in the pond for the pharmaceutical giant, which generated $56.7 billion in revenue last year.
Since the patents for regular Ritalin expired over the past 30 years, the market has been flooded with generic and modified versions. In 2008, the FDA approved Johnson & Johnson's Concerta, a sustained-release version of Ritalin that generated $1.07 billion in 2012 sales. In January 2012, the FDA approved Actavis' generic Ritalin LA, although Novartis' patent for Ritalin LA doesn't expire until 2015.
Since Ritalin is a stimulant, it can be habit-forming, and has a worse side-effect profile than many of its newer competitors. However, Ritalin remains a popular choice with consumers due to its much cheaper price.
A Foolish final thought
Although ADHD is still a controversial disorder, the market for treatments is still growing. For investors who believe that these prescriptions will keep rising over the next decade, Shire is the obvious choice, since nearly a third of its revenue is generated from its two ADHD treatments. Eli Lilly, on the other hand, doesn't have much to gain from Strattera anymore, although its success has made non-stimulant treatments a viable option for patients. Lilly was also the first to address adult ADHD, a previously unrecognized disorder.
Last but not least, the Ritalin engine that Novartis built is still going strong, fueling the growth of Actavis and Johnson & Johnson in their generic and sustained-released versions of the original drug. Although Actavis will experience steady growth in its generic ADHD treatments, Johnson & Johnson might not, since its patent for Concerta has already expired.
If you're a biotech investor, these are the main companies to watch for growth. If you're a parent or a teacher, however, it helps to understand the major businesses that these ADHD medications are fueling, and that the recent spike in prescriptions could be a warning that big pharmas have other incentives on their radars.
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