Opioid Addiction

Industry Outlook and Investment Opportunities 7 February 2021

Introduction

Opioid addiction is a national epidemic with dangerous consequences, and without intervention, it will remain so for decades to come. The increase in opioid use, addiction and related deaths poses a critical challenge to society, as it affects all ages and demographic groups in the U.S. Private capital can play a significant role in combating the opioid crisis. Funding the development of new interventions, alternative drug therapies and innovative technologies can reduce widespread dependence and suffering. Within these distinct approaches lie many opportunities for investors to advance solutions capable of delivering affected individuals from despair and matching the desired risk-return profile.

Highlights

About 2 million people have been diagnosed with opioid use disorder (OUD) in the U.S. An additional 4 to 6 million people may also have the disease but have not been formally diagnosed.

• According to the National Institute for Drug Abuse (NIDA), more than 130 Americans die every day from overdoses.

• This translates into an annual cost of more than $78.5 billion in the U.S. across factors like systemic healthcare costs, lost productivity, treatment, and criminal justice activity.

In one study, 35% of patients who were prescribed an opioid had a known risk factor for opioid use disorder (e.g. another substance abuse disorder).

• Alerting healthcare providers about patients’ risk factors can allow doctors to make informed decisions when determining if patients should receive opioids or an alternative medication.

• Significant progress can be achieved by improving how high-risk patients are handled and averting new opioid use disorder cases proactively.

Medication-assisted treatment (MAT) can reduce opioid overdose death rates by 50%, but less than half of privately funded opioid treatment programs prescribe MAT-inclusive regimens.

• Opioid addicted patients often require more comprehensive interventions, including support networks and psychological treatment when underlying conditions are present.

• Several companies are developing in-person treatment programs that address the economic and social conditions that impact a person’s health, alongside MAT and therapy.

Another promising area is the development of non-addictive therapeutics that can supplant opioids as the primary treatment option across common use cases.

• While the risks associated with opioids are apparent, their efficacy in treating various types of pain is superior to many other available options.

• The developers of non-addictive medications are attempting to match or exceed the efficacy of opioids in treating pain without entailing the same risks.

Risk Screening

One method of addressing the opioid crisis is through preventative measures designed to reduce the number of new opioid use disorder cases. Advances in data analysis provide a better understanding of patient demographics — specifically of individuals with the highest risk of developing an addiction. This enables care providers to make increasingly informed decisions about the suitability of opioids for specific patients, and to offer alternatives when necessary. Since opioids are still a preferred treatment for many conditions, risk screening personalizes care by identifying the best option for each patient.

Companies developing risk screening technologies are using several methods for quantifying risk factors:

• Prescient Medicine developed a genetic test that uses an algorithm to determine with 87% specificity whether an individual is at increased risk for opioid dependency. Prescient’s test was fast-tracked by the FDA in February 2018.

• SomaLogic studies protein signatures associated with addiction risk using their platform technology. They have raised $379.5 million over 13 separate rounds of funding.

• AutoGenomics developed the INFINITI Neural Response Panel for assessing a patient’s risk of opioid use disorder. The platform is currently under FDA review. AutoGenomics has received $67.4 million in funding over 6 rounds.

• Trestle Tree uses a proprietary algorithm to analyze 320 behavioral risk variables of addiction to predict a patient’s risk of developing an addiction. Trestle Tree has raised $5.6 million and is working with the Utilization Review Accreditation Commission (URAC), an independent healthcare quality certifier.

• PainQX is expected to be the first FDA-cleared medical device to objectively measure chronic pain using electroencephalogram (EEG) scans and proprietary machine learning-powered algorithms. The company’s approach is supported by the National Institutes of Health and was designated as one of the top ten companies that can best address the opioid epidemic.

Addiction Treatment

Recovery programs are a crucial resource for the 6 to 8 million individuals who already have opioid use disorder — including those with currently undiagnosed cases. Expanding access to treatment is important, as the cost and requirements of in-patient programs can be prohibitive for many patients. While sobriety and long-term support are the ultimate goals for successful recovery, they are not the only measures of positive outcomes. People suffering from opioid use disorder span various levels of dependence and socioeconomic circumstances. The opioid crisis will continue to grow in severity if these patients descend further into the depths of addiction, creating a longer pathway to recovery that is laden with obstacles.

Intermediate benchmarks are replacing opioid abstinence as a sole measure of success, however. These benchmarks include patient engagement and adherence to recovery programs even when relapses occur. Ultimately, recovery is only possible when an individual willingly decides to pursue it.

Emerging Technologies and Companies

• Groups Recover Together developed an in-person treatment program that considers social factors alongside traditional health indicators. Its partnerships with state Medicaid programs and commercial insurers are a testament to its outcomes: 89% abstinence, 75% retention rates after 6 months while reducing payer spending by 30%. Groups has raised $40 million in growth equity and venture funding from several groups, including Kaiser Permanente and UnitedHealthGroup.

• Boulder Care provides treatment and support through its app-based hub and video messaging platform, increasing the ease and accessibility of its program. Patients work with care providers to set goals and build a custom treatment plan. Boulder Care has raised $10.4 million in funding to further develop and scale its platform.

• Eleanor Health is the first addiction treatment provider to operate using a value-based care payment model and drive positive outcomes using a community-based approach. This method focuses on supplying patients with the necessary infrastructure and resources to facilitate long-term recovery. Its early investors include Oxeon Ventures, Echo Health Ventures, Mosaic Health Solutions, and Town Hall Ventures.

• Pear Therapeutics created reSET, a mobile app for online substance abuse therapy that uses clinically validated method for behavioral modification. When patients complete online lessons and pass mandatory drug tests, their behavior is positively reinforced and rewarded with gift cards. This new incentive structure realigns a patient’s reward system with the goal of driving long-term recovery. Since it was founded in 2013, the company has raised $134 million in funding from investors such as 5AM Ventures, JAZZ Venture Partners, and Arboretum Ventures.

• Orexo (OTC: ORXOY) obtained exclusive rights to commercialize the digital therapeutic OXD01 in August 2019. The technology uses artificial intelligence to engage patients in simulated interactions and achieve goals that aid in their recovery. The Swedish company partnered with GAIA AG, to develop a proprietary platform for opioid use disorder. OXD01 is also designed to augment the effectiveness of psychosocial counseling and medication-assisted treatment. Orexo plans to file for FDA approval in 2021.

• Sober Grid uses a telehealth platform to lower the cost of addiction treatment by providing an accessible, yet comprehensive, suite of tools for patients. It is an accessible resource that allows patients to track and share their progress, while receiving support from a network of members. Sober Grid is the largest mobile sober community and has raised $7.5 million in funding.

• Workit Health is a telemedicine addiction treatment provider that offers care to thousands of individuals. Patients have access to physician, medication, private, and group counseling, and a curriculum of more than 1,000 engaging courses on their mobile device. This model has achieved strong outcomes, including 68% retention and 84% adherence after 6 months. Workit Health partnered with NIDA, the National Science Foundation, and addiction medicine experts to develop their evidence-based and affordable addiction treatment program. It has raised $20 million in funding across three rounds.

Alternative Therapies

Considering the devastating consequences of opioids — often beginning with legitimate medical use — new therapies are being developed to replace opioids in the future. These efficacious alternatives greatly enhance the impact of risk screening on patients.

• Astraea Therapeutics is developing a drug that is 100 times more potent than morphine in reducing pain in rhesus monkeys. It also decreased addiction to traditional opioids like oxycodone. The drug is currently in pre-clinical development and it is backed by the National Science Foundation.

• Bridge Therapeutics developed an oral form of buprenorphine and naloxone that dissolves quickly, minimizing unpleasant reactions and improving patient adherence. It recently announced a partnership with Catalent Partners and is seeking FDA approval in 2020. Bridge has raised over $5 million from private investors in the U.S. and U.K.

• Blue Therapeutics is working on new therapies for patients with severe or chronic pain that can only be treated with opioids. The company developed a small molecule that is expected to demonstrate greater efficacy than fentanyl, without the same overdose and dependency risks. Like opioids, the molecule targets receptors in the spinal cord capable of blocking pain. It is currently being tested in preclinical trials. Blue expects to file for their Pre-Investigational New Drug (IND) designation within the next 12-18 months. It has raised $6 million in funding.

• Virpax Pharmaceuticals created several opioid alternatives, including DSF100 — a topical spray for acute musculoskeletal pain — and NES100 — an intranasal spray for chronic pain. It recently signed an agreement with Nanomerics to license their Molecular Envelope Technology for the nasal administration of a pain-related peptide it has developed.

Monthly U.S. Drug Overdose Deaths Since 2015

Impact Measurement Select public health metrics have long been used to assess the efficacy of addiction interventions, such as: overdose prevention, emergency room visits avoided, and healthy years gained. Some metrics available today, however, are more granular and can be applied to prophylactic measures, starting with risk screening tools.

Addiction technologies demonstrate efficacy in several ways:

• Risk screening tools can be benchmarked against their ability to predict impulsivity and poor coping skills, which are associated with a greater likelihood of substance misuse.

• Digital tools will exhibit more sophisticated and accurate predictions of which patients are at greatest risk of relapse.

Clinical programs and supporting technologies can be assessed using a stepwise framework:

• Engagement in care

• Initiation of medications

• Retention

• Remission

Alternative pain solutions are viable when they can match the efficacy of opioids, while minimizing negative side effects:

• Since there are many types of pain (e.g. acute, neuropathic, chronic, etc.) and everyone’s experience is unique, these benchmarks are partially shrouded in a layer of subjectivity.

• Pain medications have typically been assessed using patient self-reporting of pain intensity, which do not capture the full impact of chronic pain.

• The Overall Benefit of Analgesic Score (OBAS) and Clinically Aligned Pain Assessment Tool (CAPA) are multidimensional scales that are more comprehensive than self-reported pain intensity.

• Objective measures related to brain activity might be forthcoming, as researchers gain a better understanding of biomarkers for measuring pain quantitatively.

Investment Outlook

A significant portion of total capital directed towards opioid solutions is concentrated in residential and outpatient treatment centers.

• There were at least 26 private equity deals in 2018 involving addiction treatment centers, totaling $320 million.

• For comparison, there were only 21 deals in 2017 (totaling $66.5 million), and 12 deals in 2013 (totaling $189 million).

For impact investors, addiction treatment centers are neither the most cost-effective, nor seen as widely accessible to populations suffering from addiction.

• Ongoing outpatient care can also be an effective option, especially when adjusted for cost.

• Without the expenses needed to operate an inpatient facility, access to care can be expanded to a greater number of individuals at a lower price, regardless of geographic location or socioeconomic class.

Inpatient care programs do offer many unparalleled benefits compared to outpatient options as long as recovery and support are prioritized. However, well-run facilities with modestly priced programs can still be too expensive for many individuals, thus inpatient treatment targets only a subset of the broader opioid use disorder patient population. In practice, inpatient care has been challenging to scale from a business standpoint, due to significant fixed costs. Alternatively, the technology-enabled outpatient care model is much easier to grow and scale.

Venture Capital Funds

• Activate Venture Partners

Activate Venture Partners has 63 investments across 3 funds in high-growth technology companies. Their initial investments range from $750k to $3M for businesses with easy access to their offices in Pennsylvania and New York City. They invest in digital health and other technologies.

• Magnetic Ventures

Magnetic Ventures was founded in 2018 and makes early-stage investments in science and tech companies. It has invested in companies innovating in healthcare. Its most recent was valued at $2.5M.

• Newmark Venture Partners

New Market Venture Partners invests in B2B technology and has 105 investments. It provides early- stage funding for sectors including FinTech and InsurTech.

• Radius Ventures

Radius Ventures is dedicated to innovating healthcare through early and late-stage investments. It has expertise across sectors including medical devices, diagnostics, biopharmaceuticals, and life science tools.

• Marketplace Funds

Marketplace Funds is a small-scale venture capital investor in Fintech and Healthcare. Since being founded in 2015 in San Francisco, it has made 3 investments.

• Mangrove Capital Partners

Mangrove Capital Partners has 141 investments across 5 funds. Based in Luxembourg, Mangrove seeks tech companies including internet, software, and network management businesses.

• Kaiser Permanente Ventures

Kaiser Permanente Ventures is based in California and invests in healthcare companies. It seeks to work primarily with HCIT, diagnostics, drug delivery and therapeutic medical devices.

• Bessemer Venture Partners

Bessemer Venture Partners has investments in healthcare as well as consumer and enterprise businesses. It funds early and late stages and manages over $4 billion of venture capital.

• First Round Capital

First Round Capital primarily provides seed-stage funding for technology companies. It has 7 funds and offers a plethora of services to help founders build their companies from scratch.

• Tusk Ventures

Based in New York City, Tusk Ventures has investments in early-stage consumer tech startups in industries including micro-mobility, digital health, insurance, and sustainability.

• Town Hall Ventures

Town Hall Ventures comprises 2 funds and has 13 investments. It invests in companies seeking to transform care delivery and improve health outcomes for underserved populations. It currently has 15 companies in its portfolio.

• TCP Venture Capital

TCP Venture Capital invests in early-stage tech companies located in Baltimore, Maryland. It has over 17 active portfolio companies and 3 funds. It has investments in industries including healthcare and education technology.

• North Castle Partners

North Castle Partners has two funds devoted towards funding health and wellness companies. It provides market expertise and a vast network of resources to help entrepreneurs grow their companies.

• StartUp Health

Based in New York City, StartUp Health has $24.3 M in total funding and 315 investments. Its industries include biotechnology, electronic health records, medical devices, and health diagnostics.